Total Nigeria Plc FY’19 Earnings Update – Pressure on cash flows mounts amid weak operating environment

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Cityneon Raises S$235 Million; Well Positioned for Next Growth Chapter

  • The global experience entertainment company gets a S$235 million shot in the arm, closes its private fund raising in April 2021
  • Investors both new and existing include Singapore's Pavilion Capital, Seatown Holdings International and EDBI, Qatar's Doha Venture Capital and financial institutions and family offices in Singapore and China
  • These now join other existing Cityneon shareholders CITIC Capital, veteran entrepreneur and investor Mr. Johnson Ko, and Executive Chairman & Group CEO Mr. Ron Tan
  • Funding comes just after the Group acquired multi-year licensing rights for James Cameron's AVATAR touring exhibition, and two original artefacts IP on the ancient civilization Machu Picchu from Peru and Ramses the Great (Ramses II) from Egypt
  • Investments position the Group well to bring experiences across the globe, targeting to launch six experiences in China and five in the U.S. by the end of 2021, with more in other parts of the world

SINGAPORE - Media OutReach - 21 April 2021 - Cityneon Holdings ("Cityneon", the "Company"/collectively with its subsidiaries, the "Group") raised S$235 million in the most recent round of private funding. The latest round of funding adds seasoned investors to Cityneon's already strong stable of shareholders.

This funding round was led by Singapore's Pavilion Capital, Seatown Holdings International, EDBI, and Cityneon's Executive Chairman & Group CEO, Mr. Ron Tan. EDBI and Pavilion Capital are existing shareholders of Cityneon whilst new investors include Seatown Holdings International, Qatar's Doha Venture Capital, which will now own approximately 4 per cent of the Group, and other financial institutions and family offices in Singapore and China.

These now join other existing Cityneon shareholders CITIC Capital, veteran entrepreneur and investor Mr. Johnson Ko, and Executive Chairman & Group CEO Mr. Ron Tan to form a new and strong shareholder base for the Group. Mr. Johnson Ko and Mr. Ron Tan remain as the largest shareholders of the company via their combined entity, West Knighton Limited.

The Group is now well positioned for its next growth chapter and will use the proceeds for capital expenditure that includes building more of its various intellectual property (IP) exhibition sets, totaling 24 travelling and four semi-permanent sets under the Studio IP partnerships and three travelling sets under the original artefact IP partnerships by the end of 2022.

Already, the Group just signed its fifth IP rights with Avatar from 20th Century Studios last year. Amidst the anticipation from Avatar fans worldwide, Cityneon will debut a multi-sensory Avatar exhibition in Chengdu, China in May 2021, ahead of the Avatar movie sequel which is slated for release in 2022. Avatar is the world's top grossing film of all time at over US$2.8 billion, and adding millions more after its successful re-release in China in March 2021. Avatar's director James Cameron has announced that he will be producing four sequels with 20th Century Studios, with the first sequel slated for release next year. Disney acquired 20th Century Studios for US$71 billion in 2019.

The Company also recently entered the original artefacts IPs space and will stage international exhibitions of the treasures of the ancient civilization Machu Picchu from Peru in Boca Raton, Florida and Pharaoh Ramses II from Egypt in Houston, Texas. These two experiences will start welcoming visitors in October and November 2021, respectively.

Other IP rights that the Group holds include partnerships with Universal Studios for Jurassic World: The Exhibition, Marvel for Avengers S.T.A.T.I.O.N., Lionsgate for The Hunger Games: The Exhibition and Hasbro for Transformers Autobot Alliance. All in, Cityneon holds the IP rights for five of the top 10 worldwide box office hits and two artefacts IP from Peru and Egypt. The Group expects to have six sets of its various IP rights travelling across China, and five travelling and permanent sets in the United States, with a few more in other parts of the globe.

The Group will also be reopening experiences that were temporarily closed in 2020, aiming to provide visitors with a safe entertainment option. These include the Marvel Avengers S.T.A.T.I.O.N. in Toronto, Canada that will be re-opening in May 2021; and the Marvel Avengers S.T.A.T.I.O.N. exhibition in Lotte Mall in Seoul, Korea in April 2021; the same exhibition space which previously housed Jurassic World: The Exhibition, another IP experience exhibition by the Group in 2019. In the past month, the Group also witnessed record visitor numbers at their semi-permanent installations in Las Vegas, USA, signaling a strong comeback and demand for their immersive experiences, as they step into the 6th year of operations there.

While there are exciting plans lined up, the Group is not resting on its laurels. More Hollywood IPs and artefact IPs can be expected, and there will be further announcements on new IP verticals in entertainment experiences that the Group is looking to enter.

Mr. Ron Tan, Executive Chairman & Group CEO of Cityneon, said: "It is exciting that the Company is going through such strategic expansion as one of the largest providers of exhibition entertainment experiences globally. The S$235 million funding round sets a solid foundation for us to invest in developing more of our entertainment experiences, to stage even more exhibitions of the five box office hits and two artefact IPs that we hold the rights to all over the world. I'm thankful that our strong investors base, now from Singapore, Hong Kong, China and the Middle East, have trust in our vision, and believe alongside us that this space of big ideas and big experiences will only grow."

By the end of this year, Cityneon will arguably be the largest provider of exhibition entertainment experiences internationally; with global footprints in more than 50 cities and welcoming 10 million unique visitors across the world by 2022.

Cityneon Holdings

With its global reach and international partnerships, Cityneon has the capability to serve its clients anywhere in the world. Cityneon was listed on the Mainboard of the Singapore Stock Exchange since 2005, and was privatized on February 2019 by West Knighton Limited, a company wholly owned by Cityneon's Executive Chairman and Group CEO, Ron Tan, together with Hong Kong veteran entrepreneur and investor, Johnson Ko Chun Shun. Johnson is a capital markets veteran and has held controlling interests and directorships in many listed companies. In May 2019, Cityneon welcomed CITIC Capital as a new shareholder, who holds approximately 10% shares in Cityneon. CITIC Capital is part of CITIC Group, one of China's largest conglomerates, and has over US$25b of assets under its management across 100 funds and investment products globally. Other institutional shareholders of the Group include EDBI - a Singapore government-linked global investor, and Pavilion Capital - a Singapore-based investment institution which focuses on private equity investments, that made strategic investments in August and October 2019 respectively, to support the Group's further expansion globally. For more information, please visit www.cityneongroup.com.


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Total Nigeria Plc FY'19 Earnings Update - Pressure on cash flows mounts amid weak operating environment - Brand Spur


Total Nigeria Plc FY'19 Earnings Update - Pressure on cash flows mounts amid weak operating environment - Brand Spur
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Total Nigeria Plc, in line with the new SEC regulation, recently released its interim Q4’19 and  FY’19 financial statements. According to the report released, revenue declined by 6% year-on-year to N290.88bn in FY’19 from N307.89bn in FY’18. The 6% revenue decline was majorly induced by a 21% revenue decline in the ‘General Trade’ business segment to N61.09bn in  FY’19 from N76.99bn in FY’18. The General Trade business segment (24% of total revenue)  consists of sales to corporate customers excluding customers in the aviation industry. We suggest that the revenue decline in the segment resulted from increased competition and lower demand by corporate during the period.

Similarly, revenue declined by 6% in the ‘Aviation’ business segment. During the period,  revenue declined from N27.72bn in FY’18 to N26.18bn in FY’19. We also attribute the decline to lower demand of fuel products by the Company’s aviation customers due to the weak demand for services of the Company’s customers. The Aviation business segment generates an average of 9% of the Company’s total revenue.

On the other hand, revenue from ‘Network’ (sales to service stations), which contributes c.67%  of the Company’s total revenue, remained flat at N203.62bn in FY’19 (FY’18: N203.27bn).

Consequently, resulting from the pressure that came from the ‘General Trade’ and ‘Aviation’  business segments, total revenue declined by 6% year-on-year to N290.88bn in FY’19 from  N307.99bn in FY’18.

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Cost Margin Declines as fewer Volumes are Sold

The cost of sales, in the same direction with revenue, declined by 6% year-on-year to N257.06bn  in FY’19, from N273.20bn in FY’18. However, the cost margin improved by 100 basis points from  89% in FY’19 to 88% in FY’18. It is also interesting to note that the improved cost margin of  88% in FY’19 was largely driven by a lower cost margin in Q4’19 (87%) relative to the cost margin (of 95%) in Q4’18. Consequently, gross profit declined at a slower rate of 3% year-on-year (compared to a 6% revenue decline) to N33.83bn in FY’19 from N34.79bn in FY’18.

Surge in “Other Income” Suggests a Strategic Move

We note the challenges in the downstream sector of the oil and gas industry, typically characterized by low margins and inconsistent cash flows. The prospects and potentials of the downstream sector are capped with bottlenecks not limited to poor regulation, lack of free market, excessive price control, and poor government policies. As a result, we have begun to see a likely strategic shift and increased efforts on diversification by some players in the downstream sector of the oil and gas industry, in a bid to support weak margins and maintain profitability.

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The ‘Other Income’ line consists of net income and gains on the disposal of assets. Network income (Bonjour shop, rent, vendor management fees, and other miscellaneous income)  rose by 524% to N1.54bn in FY’19 from N247.93mn in FY’18; while the gain on disposal of assets rose by 130% to N2.76bn in FY’19 from N1.20bn in FY’18. The Company also earned a net foreign exchange gain of N291.11mn.

We note the 524% increase in net income earned by the company. The sharp increase,  in our view, suggests that the Company might be on course to focus on other means of generating income to support margins amid the challenging environment of its core operational activities. Recently, a competitor of the Company – 11 Plc announced its acquisition of Lagos Continental Hotel, to diversify her interests given the current challenging environment in the downstream sector of the oil and gas industry. Therefore,  we believe that the diversification effort might gradually become an industry trend.

Technical Management Fee Gulps all the Cash

The Company incurred an operating expense of N27.68bn in FY’19 – 10% higher than  N25.10bn incurred in the previous year. Breaking down the operating expenses components, the major line items that drove operating expenses higher were rent expenses  (+90% from N775.28mn to N1.48bn), and technical assistance and management fee of  N2.08bn (an expense that was not incurred in the previous year). Technical assistance and management fee relates to fees paid to Total Raffinage Marketing (parent company) for general assistance recorded for Research and Development. The expenses are generally charged to the income statement when the Company obtains approval from the National Office for Technology Acquisition and Promotion (NOTAP) with respect to the transactions.

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Nonetheless, operating profit rose by 6% year-on-year to N10.36bn in FY’19 from N9.81bn  in FY’18.

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Working Capital Deficiency Underpins Industry Challenges

But for delayed payments to creditors and suppliers in Q4’19, the Company could have reported a significantly lower operating cash flow. The Company, as of 9M’19 ended  September 2019, had a negative operating cash flow of N7.38bn. Combining a cash outflow of N2.94bn on investing activities, and additional cash outflow of N17.07bn on financing activities, the Company drew down an overdraft facility of c. N23.83bn as working capital financing to support operations. This resulted in higher finance costs across Q1’19. Q2’19,  Q3’19, and Q4’19. Finance cost rose by 179% in Q1’19 (from N686.47mn to N1.91bn), 102%  in Q2’19 (from N1.01bn to N2.03bn), 65% in Q3’19 (from N1.44bn to N1.71bn). On an annual basis, finance cost increased by 76% year-on-year from N4.46bn in FY’18 to N7.86bn  in FY’19.

Total Nigeria Plc FY'19 Earnings Update - Pressure on cash flows mounts amid weak operating environment - Brand Spur

On the other hand, finance income declined by 83% year-on-year from N6.75bn in FY’18 to  N1.15bn in FY’19. The decline in finance income was largely resulting from a high-base effect.  In FY’18, the Company earned N5.99bn from the Petroleum Support Fund (PSF). In FY’19, the  Company only earned N739.14mn, thus resulting in the shrinkage of finance income in FY’19.

PBT Falls Despite a Strong Q4’19 Performance

Profit before tax declined by 70% year-on-year to N3.65bn from N12.09bn in FY’18. However,  profit before tax in Q4’19 stood at N3.76bn (the highest since Q2’17). This implies that as at  9M’19, the Company reported a loss before tax of N117mn, resulting from high operating costs and high finance cost. Meanwhile, in Q4’19, the significant net income and proceeds from the disposal of assets boosted the bottom-line.

Profit after tax also declined by 70% year-on-year to N2.42bn in FY’19 from N7.96bn in  FY’18. The performance of the Company in FY’19 was the worst in the last 10 financial years.  Return on Equity (ROE) stood at 8% in FY’19 (FY’18: 27%; 5-year average: 33%; 10-year: 36%).

Total Nigeria Plc FY'19 Earnings Update - Pressure on cash flows mounts amid weak operating environment - Brand Spur

Outlook

Our outlook for the downstream sector of the oil and gas sector industry remains negative. This is due to the bottlenecks to growth such as inconsistent government policies, high cost of doing business, infrastructural deficits, and high regulation, we believe that revenue will be relatively unchanged in FY’2020 at N291.47bn.

We project an operating profit of N9.29bn for FY’2020, which comes at a 10% decline to  FY’19 levels. The projected decline in operating profit is based on expected lower ‘other income’ in FY’2020. We project an ‘other income’ of N1.49bn (FY’19 actual: N4.59bn). In our analysis above, we explained the spike in ‘network income’ and ‘gain on disposal of assets’. Although we suspect a possible shift in the strategy of the Company, we yet remain conservative in our assumptions until we get clarity and full disclosure on that line.

However, we believe that the Company will incur lower finance costs. Although we expect total borrowings to increase by 6% in FY’2020, we posit that the Company would take advantage of the current low-yield environment by refinancing costly debt. Hence, we forecast that finance costs will be 18% lower in FY’2020.

We adopted a blend of the Free Cash Flow Valuation Method and the Dividend Discounted  Model Valuation Method to arrive at our fair value. Our risk-free rate estimate stood at  11.36%, reflecting the market yield of the 10-year government bond. Using an equity risk premium of 6% and an adjusted beta of 0.47, we arrived at a cost of equity of 14%. Thus,  we discounted our projected future cash flows (free cash flows and dividends) by our estimated cost of equity to arrive at a fair value of N50.47.

Based on our fair value estimate, we have an earnings yield of 13%. We projected a  dividend payout 72% in FY’2020 and expect N5 to be paid as a dividend in FY’2020. Thus,  our estimated dividend yield stands at 10%. The justified PE of the stock, based on our valuation, stands at 7.08x. At our fair value estimate of N50.47, relative to the market price of N107.00, the upside potential is -53%. Hence, we recommend a SELL rating on the stock.

PS: Our estimates and forecasts are based on the released interim results. Although we do not expect material change between the released interim results and the yet-to-be-released audited result, our estimates could be revised upon the release of the audited financial statements for the year ended December 31, 2019.

Total Nigeria Plc FY'19 Earnings Update - Pressure on cash flows mounts amid weak operating environment - Brand Spur

WSTC Securities Limited (WSTC)

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Exceptional Attack Protection Proven in Rigorous MITRE Engenuity ATT&CK® Evaluations

Trend Micro’s flagship threat detection and response platform proves its advantages in sophisticated simulations

 

HONG KONG SAR - Media OutReach - 21 April 2021 - Trend Micro Incorporated (TYO: 4704; TSE: 4704), a global cybersecurity leader, excelled in the latest ATT&CK Evaluation performed by MITRE Engenuity. The Trend Micro Vision OneTM platform quickly detected 96% of attack steps from the simulation that mimicked the behavior of two infamous APT groups.


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MITRE Engenuity ATT&CK Evaluations are paid for by vendors and are intended to help vendors and end-users better understand their product's capabilities in relation to MITRE's publicly accessible ATT&CK® framework. MITRE developed and maintains the ATT&CK knowledge base, which is based on real world reporting of adversary tactics and techniques. ATT&CK is freely available, and is widely used by defenders in industry and government to find gaps in visibility, defensive tools, and processes as they evaluate and select options to improve their network defense. MITRE Engenuity makes the methodology and resulting data publicly available so other organizations may benefit and conduct their own analysis and interpretation. The evaluations do not provide scores, ranks, or endorsements.


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