Eternal Oil announces a pre-tax loss of N3.3 billion driven by FX losses in Q1

Eternal Oil Plc recently unveiled its financial results for the first quarter of 2024, revealing a pre-tax loss of N3.302 billion. This marks a significant deviation from the N1.29 billion pre-tax profit recorded in the same period in 2023. 

The company attributes this downturn primarily to a substantial foreign exchange loss of N10.69 billion, a stark contrast to the N182 million loss reported in Q1 2023. 

These figures underscore the challenges posed by macroeconomic factors such as heightened inflation, interest rates, and exchange rate fluctuations, which have been impacting businesses across the board.

As a result of these challenges, shareholder funds have been affected, with Eterna Oil’s retained losses reaching N7.01 billion, thereby eroding its shareholders’ funds. 

Despite this setback, the company saw significant revenue growth, with revenue soaring by 117.39% to N67.79 billion. Income from fuel sales accounted for about 87% of this revenue, driving a substantial 198% year-on-year growth in gross profit and a 360% year-on-year growth in operating profit.

Notable Comparisons between Q1 2024 and 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%. 

However, while the company’s reliance on fuel sales signals profitability and market dominance, it also exposes it to vulnerabilities such as fuel price fluctuations, regulatory changes, and shifts in consumer preferences. 

To mitigate these risks and ensure long-term viability, strategic management and diversification efforts are imperative. The lubricant segment, contributing only 10.6% of income, could potentially offer diversification avenues.

Despite the tight profit margins, the company remains optimistic about its future financial performance. Although its share price experienced a 6% decline following the release of its audited results on March 30, management’s positive outlook suggests confidence in the company’s ability to enhance its financial performance and regain profitability. 

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