Q1 2024: Eternal Oil reports a pre-tax loss of N3.3 billion driven by FX losses

Eternal Oil Plc has released its financial performance for Q1 2024, disclosing a pre-tax loss of N3.302 billion, a stark contrast to the N1.29 billion pre-tax profit reported in Q1 2023. 

This downturn can be attributed to a significant foreign exchange loss of N10.69 billion, in contrast to the N182 million loss recorded in Q1 2023. 

These figures reflect the prevailing macroeconomic headwinds; heightened inflation, interest rates, and exchange rate fluctuations, which businesses are contending with.  

Consequently, in some instances, this has resulted in the depletion of shareholders’ funds. Specifically, Eterna Oil has been particularly affected, with its retained losses reaching N7.01 billion, eroding its shareholders’ funds. 

Key highlights (Q1 2024 v. Q1 2023):  

  • Revenue: N67.789 billion +117.39% YoY 
  • Cost of Sales: N57.234 billion +107.04% YoY 
  • Gross Profit: N10.555 billion +198.25% YoY  
  • Administrative Expenses; N2.320 billion +34.42% YoY  
  • Operating Profit: N8.185 billion +260.11% YoY 
  • Finance Cost: N798.971 million +157.20% YoY 
  • Foreign exchange loss: N10.688 billion +5,776% YoY 
  • Loss after tax: N4.064 billion -470.44% YoY 
  • Basic LPS: N3.12 -471.43% YoY 
  • Cash and cash equivalent: N4.838 billion -29.84%. 

Setting aside the loss, the company achieved significant revenue growth, leading to robust gross and operating profits. 

  • A cursory review of the results reveals that revenue grew by 117.39% to N67.79 billion, with income from the sales of fuel accounting for about 87%.   
  • Consequently, this bolstered a substantial 198% year-on-year (YoY) growth in gross profit and a 360% YoY growth in operating profit. 
  • However, it’s crucial to recognize that while the significant reliance on fuel sales may signal profitability and market dominance, it also exposes the company to vulnerabilities stemming from fuel price fluctuations, regulatory changes, and shifts in consumer preferences. 

This highlights the urgent need for strategic management and diversification efforts to mitigate these risks and ensure long-term viability.  The lubricant segment, contributing only 10.6% of income, could potentially offer diversification avenues. 

Furthermore, considering the tight profit margins, this becomes even more crucial. The cost of fuel, which constitutes about 88% of the total cost of sales, consumes approximately 85% of fuel sales. This has resulted in the narrow gross profit margin of 16% and an operating profit margin of 12% recorded in Q1 2024. 

Since the release of its audited results on March 30, the company’s share price has experienced a 6% decline. This suggests that investors may have reacted negatively to the financial performance revealed in the results. 

However, investors may find encouragement from management’s optimistic outlook regarding the company’s prospects for enhancing its financial performance and regaining profitability.  

The company’s Q2 2024 profit forecast of N1.04 billion, coupled with an anticipated revenue of N118.1 billion, reflects its confidence in reversing its previous loss position. 

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