TOTAL Q3 PROFIT DECLINE AS REFINING MARGINS DROP

Europe’s second-largest oil producer, reported a 19 percent declined in third-quarter profit as refining margins in Europe dropped.

Profit, excluding changes in inventories, fell to 2.72 billion euros ($3.7 billion) from 3.36 billion euros a year earlier, the Courbevoie, France-based company said. That was in line with the 2.73 billion-euro average estimate of nine analysts surveyed by Bloomberg. Dividends were unchanged.

Production advanced 1 percent to 2.3 million barrels of oil equivalent a day after Total resumed output at the North Sea Elgin platform and the Ibewa field in Nigeria. New fields were started in Kazakhstan and Norway.

“The refining environment remains very difficult right now,” Chief Financial Officer Patrick de la Chevardiere said on a conference call. “Margins are extremely weak, we still have an endemic problem of overcapacity” in Europe.

Total fell as much as 2.5 percent and traded down 57.5 cents to 44.655 euros at 9:12 a.m. in Paris.

Total has pledged to boost production to reach 2.6 million barrels of oil equivalent a day in 2015 and about 3 million barrels a day two years later. The French company has also promised to explore more aggressively for new deposits and start up almost twice the number of projects in the next three years than the previous three.

“The group is improving the outlook for sustainable post-2017 production growth under terms consistent with its strict return criteria, while confirming its commitment to reduce near-term investment,” Chief Executive Officer Christophe de Margerie said in the statement.

Raise Payout

Total will pay an interim dividend of 59 euro cents a share, according to today’s statement. The explorer failed to raise the payout this quarter as some asset sales haven’t yet been completed, de la Chevardiere said. Total “has room” to do so in the future.

Benchmark Brent crude oil prices averaged $109.65 a barrel in the third quarter, just 23 cents more than the same period last year. Total’s refining margin, a generic measure of profitability, shrank to the lowest level in almost five years to $10.60 a metric ton, compared with $51 a ton a year earlier, according to an Oct. 15 posting on its website.

Kashagan in Kazakhstan, the world’s biggest crude discovery in the last 40 years, produced its first oil in September before being shut due to problems with leaks. Total has a 16.81 percent stake.

Platform Shut

The Elgin platform was shut for almost a year following a natural-gas leak in March 2012. Output resumed March 9 at about half capacity, and will return to prior levels by 2015 with the addition of new wells.

De Margerie had promised output growth of 2 percent to 3 percent this year, a target de la Chevardiere declined to reiterate today.

“We are expecting an increase in 2013,” he said, adding the magnitude will depend on Kashagan and Angola liquefied natural gas output.

The drop in third-quarter results was due in part to a 42 percent fall in adjusted net operating income from refining and chemicals as well as an increase in spending on exploration.

Total spent $400 million more in the most recent quarter on exploration compared with the same period last year due to a more “aggressive” push to uncover new deposits, de la Chevardiere said. “We haven’t yet found the giant field we are looking for.”

As Total develops so-called mega-projects, de Margerie is also carrying out a series of asset sales to help pay for them. About $15 billion of asset will have been sold by the end of the year as part of a target for $15 billion to $20 billion between 2012 to 2014, de la Chevardiere said today.

He also confirmed a pledge that spending will peak this year. Total expects capital expenditure to fall to $24 billion to $25 billion in 2015 to 2017 compared with $28 billion to $29 billion this year.

Investors eye captive power to improve supply after PHCN takeover

Eagerly awaiting the physical handover of the privatised Power Holding Company of Nigeria’s (PHCN) successor companies by the Federal Government, buyers of the distribution companies (Discos) are considering tapping into off-grid electricity after takeover to provide better services to their customers.

This is an indication of their realisation of the enormity of the challenges ahead in bringing about steady power supply in the near term, which, according to analysts, should not be expected until 2017.

“We have the availability of additional power from industrial producers. So, we can look to off-grid power to inject directly into certain neighbourhoods and then better serve customers in those neighbourhoods,” Daniel Mueller, transaction advisor of West Power and Gas Limited, the buyer of Eko Electricity Distribution Company, told BusinessDay on the sidelines of the Power Investors Summit Nigeria held recently.

“And this will be part of what we will do because we have to show customers that there is a real difference being made. We will just ask that customers bear with us as any sort of new generation project will take some months to implement, but we will strive to communicate with our customers the programme that we have in place,” he added.

Off-grid power is electricity available for supply to specific consumers through a dedicated distribution network but not connected to the national grid.

Last week, BusinessDay reported that investors in the power sector may have up to four years to sort out challenges in the Nigerian electricity market before consumers start benefiting from the transfer of ownership of the PHCN assets to private sector management, according to industry analysts.

Nigerian companies’ efforts to meet their respective power demand in the face of worsening supply have resulted in a whopping generation of about 1,457 megawatts (MW) off-grid electricity, with some of them having spare capacity. Discos are eyeing this as a stopgap measure to improve power supply.

“Technically, it is doable. If the intention is to only distribute the electricity, I believe NERC would be willing to give them some concession (note that buying and reselling would require a trading licence).”

Some of the companies who have captive power plants are not using all the capacity they have and are, indeed, willing to sell the spare capacity they have,” said Ayodele Oni, an energy law and policy expert and senior associate in top law firm, Banwo & Ighodalo.

Oni is also of the view that for those companies to sell the spare capacity beyond the captive generation permits they may have, they would also be required to obtain generation licences.

Diran Fawibe, chairman and chief executive of International Energy Services Limited, said that “if this is an interim measure pending the time that they will be able to sort out the masterplan they have for the power sector, then it should be encouraged. There is nothing fundamentally wrong with off-grid power. For over 20 years, I have been advocating distributed power system.”

Sam Amadi, chairman of the Nigerian Electricity Regulatory Commission (NERC) said the new investors can buy off-grid power as long as they follow the process, adding that they are not bound to the one from the national grid.

“Discos are always free to contract power from embedded generators if they so choose as long as they follow the process and regulations,” he said. “They can buy new powers, but they have to follow the rules. They have to follow the licence terms. They have to procure it based on competitive process. They have to buy it at the price we have set. It doesn’t matter where they buy. They can buy from anybody. The person just has to get a licence to supply to them.”

Some of the companies that have invested in captive power plants include Lafarge WAPCO (90MW); Dangote Cement (258MW) at Obajana and Ibeshe; Western Metal Product Company Limited (WEMPCO) 52MW; Nigerian Breweries plc (16.8MW); Guinness Nigeria’s Ogba brewery (9.3MW); and Nestle Nigeria plc (3MW).

Others are United Cement Company (47mw); BUA Sugar Refinery (20MW); BUA Cement (45MW); Notore Fertiliser (50MW); Flour Mills (60MW); Unilever (6MW); Academy Press (1.2MW); Cadbury (7.3MW); IMIL (14MW); Dangote Sugar (15MW); Golden Sugar (12MW); Island Power (114MW); Oando Akute (12.1MW); NLNG (400MW); and Indorama Eleme Petrochemical/Indorama Fertiliser plant, about (225MW).

Last year, NERC issued regulations on embedded generation and independent electricity distribution, as part of efforts to improve power generation in the country.

Embedded generation is the generation of electricity that is directly connected to and evacuated through a distribution system which is connected to a transmission network operated by a System Operations Licensee.

Nigeria is targeting 40,000 MW generating capacity by 2020, but power generation capacity currently hovers between 2,500MW and 3,500MW for a population of over 170 million people.



By: FEMI ASU

LAGOS STATE 2014 BUDGET: N489.690bn

Governor Babatunde Fashola of Lagos State on Wednesday presented to the state House of Assembly a budget proposal of N489.690 billion for the year 2014, targeted basically at completing ongoing projects in the state.

The budget proposal which is the last full-year budget Fashola will be implementing before the expiration of his eight-year tenure midway into 2015, consists of N234.665 billion recurrent expenditure and N255.025 billion capital expenditure. The budget size is slightly lower than that of 2013 which was N499.105 billion.

The budget according to the governor, would be directed at completing ongoing projects, as well as consolidate on the gains so far made.

Fashola, speaking on the recent announcement by the Federal Government that a $200 million World Bank loan had been approved for Lagos to fund capital projects such as the light rail, Adiyan Water Works among others, emphasised that the approval was coming rather late.

“You might all recall that in 2010 when I presented the year 2011 budget, I announced that we had negotiated a World Bank loan for $600m to fund a three-year medium term expenditure framework for years 2011, 2012 and 2013 which required Federal Government approval.

“Although the approval for the loan was given then and the year 2011 first tranche for $200m was released in that year, the year 2012 and 2013 tranches were frustrated by Federal Government agencies,” he said.

He added that the state’s development was held up and slowed down for about two years since the 2012 and 2013 components of the loan are now being approved in the last quarter of 2013.

“In truth and in fact, our state’s development was held up and slowed down for 2 years. Progress on the rail was held back, supply of additional 70 million gallons from Adiyan Water Works was slowed down, and progress on Lagos Badagry Expressway was equally slowed down,” he said.

He lamented that the state has had to borrow money at shorter tenures of seven years and higher interest rates of 14% and 17%, instead of 1% and 40 year tenure which the delayed World Bank loan offered.

“But nevertheless, our spirits are high, the high interest costs notwithstanding. I am pleased to report progress on these construction sites which provides employment for 1,000 workers on the rail project and 500 (Five Hundred) workers at Adiyan Water Works. The promise of reliable rail transport system for Lagos and an additional 70 million gallons per day of water when Adiyan is completed makes it all worthwhile,” he stated.

World's latest mega-airport finally opens

Dubai's aviation industry achieved its biggest milestone to date on Sunday, when the emirate's new airport welcomed the arrival of its first commercial flight.

Located in Jebel Ali and part of Dubai World Central, an "aviation city" that the government launched as a free economic zone, Al Maktoum International Airport is expected to become the world's largest airport upon completion.

Like the emirate's main airport, Dubai International Airport (located 50 kilometers to the north), Al Maktoum International Airport is owned by the government of Dubai and operated by Dubai Airports Company.

Although full commercial passenger services were originally scheduled for 2017, the mega project was delayed for years due to the regional financial crisis, and faces a new tentative completion date of 2027.
Various reports estimate the total cost of the project at 120 billion dirhams ($32.67 billion).

The airport has been open for cargo flights since 2010.

Hungarian low-cost airline Wizz Air was the first airline to be welcomed at the new passenger terminal, and was greeted with a customary festive water salute.

Al Maktoum International Airport's two other launch carriers are Kuwait-based low-cost carrier Jazeera Airways and Bahrain's full-service Gulf Air, which also made its inaugural flight to the new airport on Sunday.

The UAE's state-owned carrier Emirates is expected to operate entirely out of the new hub by the time of completion.

More: Insider Guide: Best of Dubai

Gulf News has reported that more airlines are close to signing deals to use the new airport, with the Dubai Airports CEO hinting at more announcements to come.

Currently operating just one main runway, Al Maktoum will ultimately operate five runways with an annual capacity of 160 million passengers and 12 million tons of cargo.

To put those numbers into perspective, the world's current busiest airport, Hartsfield-Jackson Atlanta International Airport, serviced approximately 95 million passengers in 2012.

Dubai International Airport handled 57.7 million
source: CNN.com

CITIES IN AFRICA WITH HIGH COST OF LIVING

According to an index released by the Economist Intelligence Unit (EIU) on 25 African cities, Lagos and Abuja have been listed among the top four cities in Africa with high cost of living.
The key results of cost of living per city by the EIU reveal that Abuja is the second most expensive city with total expenditure score of 107.4, next to Luanda with a score of 131.8, while Lagos comes fourth with 100.8 total expenditure, as Addis Ababa came last with a score of 60.8.

A breakdown of the index shows that Abuja emerged number 12 out of 25 cities, in terms of consumption of alcoholic beverages, tobacco and narcotics, scoring 78.3, while Lagos scored 63.8 to emerge number 21 of the cities that consume same.

Meanwhile, Khartoum in Sudan comes tops on the list of cities with highest consumption of alcoholic beverages, tobacco and narcotics, scoring 121.3. On the other hand, Douala in Cameroon ranked last of the 25 cities sampled with 46.9 consumption rate.

In terms of transport, Lagos and Abuja emerged 15 and 22 out of the 25 cities, scoring 107.5 and 91.7, respectively. Top in the list is Abidjan with 172.0 score spent on transportation, while Alexandra in Egypt came last with a score of 71.7.

According to the EIU, per capita expenditure is higher in each of the sampled cities, as the index indicates that citizens in cities spend 94.4 percent more, per capita, than their counterparts in the countryside.

“Africa is urbanising fast and cities are attracting more and more migrants. As a result, we are witnessing the emergence of “super cities”- each bringing considerable opportunities. The demographic profile of these cities can be much different than the national level picture,” the EIU notes in the survey.

Africa’s growth is becoming more diverse as a result, companies are more interested than ever in expanding into Africa, it says further.

A recent survey conducted by The Economist Group of 217 global companies based in 45 countries reveals that expansion in Africa is a priority for two thirds of them within the next decade.

EIU’s key result of expenditure per capita differs markedly across cities. For instance, US$/per capita expenditure of Abuja and Lagos are 2,185 and 2,159, respectively, in terms of total expenditure on all items.

Johannesburg in South Africa emerged number one of the cities with highest US$/per capita expenditure, scoring 7,436, while Dar es Salam in Tanzania spend is lowest, scoring 572 US$/per capita expenditure.

A breakdown of the US$/per capital expenditure indicates that Lagos and Abuja scored 4 and 3, respectively, in terms of spend on alcoholic beverages and tobacco.

In the area of transport, US$/per capita expenditure of Abuja and Lagos stood at 157 and 147, respectively. Tripoli in Libya emerged the top most city with 1,780 US$/per capita expenditure on transport, while Lusaka in Zambia is at the bottom of the list with 31.

Even though, it says challenges remain, which include corruption, poor roads, inefficient border posts, inadequate railway networks, poor skill base, congested ports, and unwitting airports, among others.

To the EIU, to expand, companies need Africa city-level data and analysis, as “companies looking to expand into Africa want to concentrate their strategy where growth and demographics are most favourable – in major cities. It is not enough to plan a strategy around nationally-forecasted growth, but rather to have critical forecasting and business information on a particular city.”

The Economist Intelligence Unit also notes that 25 African cities present best opportunities for growth - based on key economic drivers, client feedback and a survey of economists.

In Corporate Network members, the EIU identifies 25 African cities (across 19 countries) that are of particular interest. The EIU collects and analyses the data needed to support the case and strategy for market entry.

Ecobank Transnational opens first branch in Ethiopia

Pan-African banking group Ecobank Transnational has opened its first branch in Ethiopia, establishing a foothold in the fast-growing East African economy and extending its African network to 35 countries.

Economic growth in Africa’s second most populous country is running at more than 9 percent and the government could open up the state-dominated banking sector to new entrants before too long.

Ecobank CEO Thierry Tanoh said that the new branch will give the lender a head start in marketing its pan-African services to overseas businesses and other banks in the region before possible banking deregulation.

“Ethiopia has emerged as one of Africa’s most exciting new markets and is forecast to be the world’s third-fastest-growing economy between 2011 and 2015, behind only China and India,” Tanoh said, adding that Ecobank aims to profit from increasing trade across different African nations as the continent steps up its development and infrastructure.

Tanoh said that such trade had grown to 12 percent of total trade on the continent last year, from less than 10 percent five years ago.

Shares in the bank slipped 1.36 percent to 13.85 naira on Friday, but the stock has gained 24 percent since the start of the year.

Ecobank, which has been expanding rapidly across Africa in recent years, said it obtained the licence for a representative office in July and that the new operations will start with an initial staff of three people.

Nigeria, Africa’s most populous nation with 160 million people to Ethiopia’s 80 million, contributes more than 40 percent of Ecobank’s group revenue.

MRS Oil: Strong performance in Q2 as revenue hits N46bn

Background
MRS Oil Nigeria plc, a major player in the downstream Nigerian oil and gas industry, condensed interim financial statement for the half year 2013, shows a strong performance.
The company distributes and markets refined products and fuels, also blending lubricant and manufactures greases.
MRS was incorporated as Texaco Nigeria Limited (privately owned company) on August 12, 1969, and was converted to public limited liability company quoted on the Nigerian Stock Exchange in 1978, as a result of the Nigeria Enterprise Promotion Decree.
MRS has 254 million shares outstanding, with shareholder funds standing at N19.3 billion at the end of June 2013.

Financial performance for half year 2013
MRS reported gross income of N46.06 billion for the six-month period to June 2013, an increase of 21.1 percent Year-on-Year (YoY), from N38.2 billion as of half year (HY) 2012.
Premium motor spirit (PMS) sales, which make up to 75.6 percent of total revenue for the six month period to June 2013, rose by 25.5 percent (N34.9bn) from N27.8 billion in the corresponding period 2012.
Gross profit fell by 3.6 percent to N2.76 billion in June, 2013, as compared with N2.8 billion in the corresponding period of June 2012.
The slight contraction in gross profit is as a result of rise in the cost of sales by 22.2 percent to N43.3 billion in June, 2013 from N35.43 billion corresponding period of 2012.
It posted a profit before tax of N256.6 million half year ending June 2013, showing decrease of 4.2 percent, compared with N267.8 million in the corresponding period last year.
Profit after tax increased by 44.2 percent to N192.4 million in June, 2013 from N133.6 million in the corresponding period 2012. Income tax expense, which was based on management’s estimate of the weighted average income tax expected for the full year as stated in the condensed interim financial statement, shrank by 52.2 percent to N64.14 million June 2013, from N134.23 at year end 2012.
Administrative and distribution expenses rose to N2.6 million q-o-q in June, 2013 from N2.3 million in June 2012.
Earnings per share increased by 43.4 percnt to 76 kobo from 53 kobo in HY 2012. This was largely driven by the retail/commercial and industrial segment of MRS, which was the largest contributor to revenue across key indices.
The retail/commercial and industrial segment contributed 85 percent of turnover, 69 percent of gross profit, and 84 percent of profits before tax.
Trade and other receivables grew by 22.2 percent to N22.3 billion HY 2013, from N18.4 billion year end 2012. Trade receivables (Debtors), which make up 54 percent of total trade and other receivables, rose by 54 percent to N12.4 billion for HY 2013, from N3.4 billion year end 2012. The analysis reveals that discount should be given to customers to enable them pay more quickly and hence improve debtors collection.
Inventories increased by 30.2 percent to N5.6 billion for the period ended June 2013 as compared with N4.3 billion year end 2012. A break down of inventory as stated in the notes to the condensed financial statement shows that premium motor spirit (PMS) increased by 127.3 percent to N1.98 billion for six month to June 2013, as against N872.3 million in yearend 2012.
To reduce inventories; the company should adopt the Just in time (JIT) inventory system, which focuses on having the right quantity at the right time to prevent wastage of resources.
Cash and Cash equivalents reduced by 50 percent to N5.1 million in June 2013 compared with N10.1 million for year end in 2012. It shows the company is pursuing a conservative liquidity policy that avoids over-trading in its operations.
MRS property, plant and equipment, which represent 99 percent of total non-current asset, fell slightly by 2.3 percent to N 21.5 million compared with N22 million year end 2012.

Share performance and outlook
The stock closed trading at N34.26 per share on October 23, 2013, and currently has a price to sales ratio of 0.1.
It had a market capitalisation of N8.7 billion as October 23, 2013, while its shares have risen by 115 percent in the past year, compared with a 41.8 percent gain in the wider NSE All Share Index

DIAMOND BANK, IFC TO INCREASE ACESS TO FINANCE FOR AGRICULTURAL SECTOR IN NIGERIA

IFC, a member of the World Bank Group, says it will provide advisory services to Diamond Bank plc to help it increase access to finance in Nigeria’s agricultural sector by up to $33 million over two years, strengthening a vital but severely under-financed sector in Nigeria’s economy and boosting small businesses.

The projected lending will be extended to small and medium enterprises across the sector, including livestock farmers, producer groups, distributors, processors, traders and retailers. It will also target almost 2,000 small holder farmers. IFC will provide Diamond Bank with advisory services on strategy, product development and risk management, and help develop a financing model to viably lend to small and medium agribusinesses.

Alex Otti, CEO, Diamond Bank, said: “Diamond Bank has always demonstrated market leadership in the provision of innovative financial services and solutions to all segments of the society. Through this partnership with IFC, we are better positioned to serve a faster growing share of Nigeria’s newly emerging bankable population in the agricultural sector, and create more growth opportunities for the players as well as the economy.”

Ian Weetman, IFC financial markets manager in sub-Saharan Africa, said: “Increasing growth and employment in the agricultural sector is a critical objective for IFC in Nigeria and sub-Saharan Africa. To this end, IFC’s advisory services aim to increase access to finance throughout the agricultural and food supply chain. We are very pleased to be working with our longstanding partner, Diamond Bank, in the pursuit of these objectives.”

Agriculture is the main activity of the majority of Nigerians, accounting for 40 percent of gross domestic product and 60 percent of employment, but the sector currently only receives 1.4 percent of total commercial bank lending in the country. With increased financing, the sector can develop as a business to fulfil its potential as an engine of economic growth and employment