Foreign exchange loss dampens MRS Nigeria Q1 performance

MRS Nigeria plc had first-quarter (Q1) results dampened by foreign exchange losses stoked by the devaluation of the naira.

The downstream oil and gas firm posted a loss after tax of N919.09 million in Q1 2015, from a profit position of N171.98 million the previous year as the company’s huge finance costs swallowed operating profits.

The currency volatility spiraled MRS’s borrowing costs that surged 1031 percent to a record N1.38 billion in 2015, as the company had much dollar denominated debt in its balance sheet.

“There are risks in the downstream book because the margins to these businesses are quite thin and could get eroded by currency devaluation,” said analysts at Renaissance Capital in a December 1 2014 research note obtained by BusinessDay.

Nigeria central bank scrapped its bi-weekly currency auctions in February 2015 and the market body said it would sell dollars only at N198, a move that amounts to a de facto devaluation of Nigeria’s currency.

“I foresee a big problem for oil marketers as a result of the devaluation of the naira,” said Tokunbo Korodo, chairman, Nigeria Union of Petroleum and Natural Gas Workers, Lagos zone, in a February 23 interview.

Oil marketers in Africa largest economy Nigeria have been groaning as the delay in subsidy payment has hindered them from paying money owed to banks to finance fuel importation.
The sustained delay in subsidy reimbursement is also forcing the marketers to seek additional debt funding.

“Non-payment of the debts remained a threat to the business of the marketers as well as the product supply arrangement currently in place,” said Korodo.

It is expected that the subsidy reimbursement of N156 billion out of the N256.2 billion owed will enable marketers pay money owed banks hence a reduction in interest on borrowings.

MRS Nigeria’s cost of sales reduced by 12.58 percent to N19.72 billion in 2015 as against N22.56 billion in 2014, while cost of sales margin was as high as 92 percent.

Gross profit margin increased to 7.54 percent in 2015 compared with 6.60 percent in 2014.

MRS Nigeria total assets remained flattish at N57 billion while total shareholders fund increased by 4.50 percent to N19.30 billion in 2015 from N20.21 billion the previous year.

The company’s share closed at N50 on the NSE, while market capitalisation was N12.83 billion.

BALA AUGIE