NNPC: Inefficient in its Core Business, Excelling in Non-Core Areas (2)

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Integrated Data Services Limited (IDSL)

The Integrated Data Services Limited is one of the subsidiaries of the NNPC which offers geophysical and petroleum engineering services in the upstream sector of the oil and gas industry. The company increased its revenue by N1.37 billion (or 7.76%) in 2018 compared to the 2017 revenue of N17.66 billion. Profit for the year (N154 million) includes an exchange rate loss of N1 million compared to the 2017 profit of N4.05 billion which includes N2.9 billion exchange rate gain. The total comprehensive income of N3.2 billion in 2018 was because of actuarial gain of N3.06 billion in 2018 and none in 2017 as the company started complying with the IAS 19 on Employees benefits in 2017.  The gross profit margin was 43.87% in 2018 compared to 30.27% in 2017. With total assets of N55.23 billion as at 2018 compared to total liabilities of N74.25 billion during the same period, it leaves the company to a negative total equity of –N19.03 billion in 2018 down from –N10.34 billion in 2017.

Kaduna Refining and Petro-Chemical Company Limited (KRPC)

The Kaduna refinery process crude oil into petroleum products and related derivatives. It is also involved in the production of liquefied petroleum gas, tins, and drums using the refinery and petrochemical plants that are under lease from the NNPC. While the company generated N2.24 billion in revenue for the year 2017, it did not generate any form of revenue in 2018 but recorded an operating loss of N64.55 billion during the period (vs. operating loss of N112.01 billion in 2017). Despite not generating revenue in 2018, the Kaduna refinery printed direct cost of N24.69 billion stemming from employees benefits of N9.62 billion, operational lease rental- refinery assets of N11.42 billion, and other direct costs of N3.65 billion. Adding other income of N134.44 million to the gross loss and subtract administrative expenses of N39.99 billion, we arrive at an operational loss of N64.55 billion for Kaduna refinery in 2018. This is a 43.37% reduction when compared to the operating loss of N112.01 billion recorded in 2017.Total comprehensive loss amounted to N64.30 billion in 2018 (vs. N111.90 billion in 2017). From the Five years summary of Kaduna Refinery, the company has been operating at a loss since 2014, and this can be attributed to the low level of capacity utilization while fixed cost remains sticky.

In the same vein, the company has been on a negative total equity since 2014. We noted that the company recorded total assets of N10.95 billion as at 2018 compared with N434.38 billion in total liabilities, leading to a negative equity position of N423.43 billion.

National Petroleum Investment Management Services (NAPIMS)

The NAPIMS is the most profitable and biggest subsidiary of the NNPC. It is the corporate service unit of the NNPC, charged with the administrative duty of giving effect to agreements entered into by the Federal Government of Nigeria to secure the participation of the government in activities connected with petroleum. The company’s revenue amounted to N5.04 trillion in 2018 compared to N3.26 trillion generated in 2017. With a cost of sales of N2.07 trillion in 2018, the gross profit margin was 58.93% (vs. 49.39% in 2017). The company incurred N2.26 trillion in general and administrative costs in 2018 and made a profit of N1.02 trillion for the year 2018 (vs. N1.65 trillion recorded in 2017). By added other comprehensive income worth N44.54 billion, NAPIMS generated a total comprehensive income of N1.06 trillion for the 2018 financial year.

Total assets during the period printed at N18.64 trillion (with oil and gas properties worth N14.15 trillion), while total liabilities as at 2018 was N9.09 trillion thereby leaving total equity to print at N9.55 trillion comprising of retained earnings (N4.72 trillion), foreign currency translation reserve( N4.77 trillion), actuarial reserve(N62.60 billion) and grants (N6 billion).

National Engineering and Technical Company Limited (NETCO)

NETCO generated N36.64 billion as revenue in 2018 (vs. N22.46 billion generated in 2017) representing a significant growth rate of 63.13%. This was due to the revenue earned from the construction phase of the Major Integrity Projects- EPCM2 Qua Iboe Terminal Power Distribution Upgrade Project with Mobil Producing Nigeria, which operated fully in the period under review. Time-based contracts represented 29.37% of total revenue, while fixed-fee contracts represented 67.47% and Re-reimbursable represented the remaining 3.17% of total revenue in 2018. It is worthy to note that NETCO engages in the provision of basic engineering, procurement, construction, supervision, and project management services to companies operating in the Nigerian oil and gas industry. Its Profit Before Tax (PBT) increased by 107% from N3.26 billion PBT in 2017 and we noted that foreign exchange gain constituted 5.61% of the PBT in the year under review. Gross Profit and PAT margin for the year 2018 were 30.59% and 12.55% respectively with cost to sales ratio printing at 69.41% in 2018 compared to 67.05% in 2017.

N-Gas Limited

N-Gas is charged with the responsibility of facilitating the delivery of natural gas shipped through the Escravos-Lagos Pipeline system and the West African Gas Pipeline to customers in Ghana, Togo, and Benin Republic and the company reports its earnings in US dollars. The NNPC owns 62.35% of this subsidiary, Chevron N-Gas Limited owns 20% and the remaining 17.65% is owned by Shell Overseas Holdings Limited. N-Gas printed $5.2 million in revenue compared to $2.60 million recorded in 2017. There was no record of production cost in 2017 and in 2018, leaving the gross profit equal to the total revenue for the year. However, the company incurred finance cost of $4.72 million while it earned finance income of $5.38 million during the period under review, as net profit for the year stood at $6.38 million.

Nigerian Gas Company Limited

The top-line and bottom-line performance of the Nigerian Gas Company were impressive. Revenue grew by 24% in 2018 to N89.93 billion and PAT increased significantly by 117% to N13.29 billion (vs. N6.11 billion in 2017). The company’s principal activity is the transportation and delivery of Natural Gas to major industrial users and utility distribution companies in Nigeria. NGC banked a gross profit margin of 85.44% in 2018 while the PAT margin was 14.78%. The cost of sales of the company comprises of N3.21 billion incurred as pipelines maintenance cost and N9.88 billion incurred as other direct expenses. The company’s administrative expenses for 2018 was N51.29 billion (vs. N43.19 billion in 2017). Total comprehensive income for the year however printed at N19.997 billion (PAT at N13.29 billion) due to N6.71 billion actuarial gains post-employees’ benefits. It appears that the company took on debt financing during the year as finance cost amounted to N2.88 billion in 2018 while there was no record of finance cost in 2017.

Nigerian Gas Marketing Company Limited (NGMC)

The NGMC is engaged in the sourcing, marketing, and distribution of natural gas and the delivery to major industrial users and utility distribution companies in Nigeria and West Africa. With the revenue generated mainly from the sale of natural gas, the company recorded N243.63 billion in revenue in 2018 (vs. N275.16 billion in 2017) representing a decline of 11.46%. The decline in revenue during the period was as a result of the GENCOs purchasing gas directly from gas producers starting from June 2018. The cost of sales for the year was N217.35 billion while operating expenses was N13.80 billion. The company printed PAT of N16.62 billion, representing a profit margin of 6.8%, and since there was no other comprehensive income earned during the period, total comprehensive income for the year 2018 was equal to the PAT during the period.

NIDAS Marine Limited

NIDAS Marine engages in marine transportation of crude oil and allied products. The company’s revenue grew by 40% in 2018 to N10.45 billion (vs. N7.45 billion in 2017). Direct operating cost printed at N9.41 billion, thereby leaving the gross profit margin for the year at 9.98% (9.8% in 2017). PAT for the period was N761 million which is 55.31% less than the PAT of N1.7 billion recorded in 2017. The major reason for the decline was due to earnings normalization as the company could not record any discount gain on financial assets in 2018 as it did in 2017 (N1.39 billion). The company was able to ease its negative equity position to negative N209 million naira (vs. negative N1.5 billion in 2017).

NIDAS Shipping Services

The principal activities of NIDAS shipping services are the investment holding and the provision of marine transportation of crude oil and allied products. It reports its earnings in US dollars unlike NIDAS marine. Revenue was $40,581 during the period under review compared to 2017 when it did not record revenue. Administrative expenses however was $1.04 million which is more than the revenue recorded during the period. When the company did not earn revenue in 2017, administrative expenses printed at $14,296 which translates to N5.15 million when converted to Naira using the exchange rate of N360/$.

NIDAS Shipping Service Agency (UK)

NIDAS UK engages in the provision of agency services to NIDAS Shipping services Limited. Revenue printed at £751,075 during the period under review and this represents a marginal decline of -3.39% when compared with £777,392 recorded as revenue in 2017. Administrative expenses during the period constitute 87.46% of the total revenue recorded. In 2017, administrative expenses was £777,862 which is 0.06% more than the revenue recorded in the 2017 financial year. The company, however, was able to overturn the loss (£2,928) recorded in 2017 to PAT of £74,794 in 2018. The company was also able to bank retained earnings of £237,637 in 2018 which comprise of retained earnings of £162,843 from the previous year and profit (£74,794) realized for the year. Total assets declined marginally by 1.2% to £2.3 million while total liabilities declined by 4.79% to £2.07 million.

• This article was written by the Research Team (Abdulazeez Kuranga, Okeowo Ebenezer, Sheriff Adeoti and Olorunsaiye Joshua), the analytics was led by Okeowo Ebenezer while Samuel Adebisi Edited it.

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NNPC: Inefficient in its Core Business, Excelling in Non-Core Areas Part 3