Total Nigeria managed to overwrite a half-year loss in the third quarter but the company is still headed for the worst performance in many years in the 2020 financial year — crashing sales revenue is the centre of its challenges.
The petroleum marketing company lost 37 percent of turnover quarter-on-quarter in the third quarter ended September 2020.
Loss of sales revenue is happening for the second straight year after a drop of 5 percent to ₦292 billion in 2019. The drop has accelerated to nearly 32 percent year-on-year at the end of the third quarter. The full-year outlook indicates that sales revenue could descend to the region the company played as far back as 2015 when it closed at ₦208 billion.
Loss of sales is compounded by inability to keep key expenses down with sales revenue, which has crashed operating profit.
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A drastic move by the company’s management to cut cost in the third quarter enabled it to overwrite a net loss of ₦537 million at the end of half-year operations and returned a net profit of ₦500 million at the end of September.
Total Nigeria has lost profit every year since its peak profit record of N14.8 billion in 2016. Last year, it suffered a drop of 71 percent in after-tax profit to ₦2.3 billion – the worst performance record for the company in at least a decade. Baring a final quarter windfall, another major profit drop looks quite likely for the petroleum company at the end of 2020.
The rebound in the third quarter helped the company to escape from losses built in the first two quarters of the year. This happened through cost-saving from input cost and finance expenses with which the company built a profit of ₦1 billion in the third quarter.
Cost of sales was slashed by 42 percent quarter-on-quarter with which the company was able to raise gross profit from the large drop in turnover in the quarter. Also, finance expenses dropped by 72 percent over the same period to ₦611 million for the third quarter.
These two favourable developments provided the company with the strength to return to profit in the third quarter despite the accelerating drop in turnover. An operating loss of ₦1.6 billion in the second quarter reversed to an operating profit of almost ₦2 billion for the third quarter.
The ability to stage the turnaround from a 37 percent drop in sales is the big event that changed the earnings story for Total Nigeria in the third quarter. However the running loss of sales by a market leader presents a strong bearish point on the company so far this year.
On a year-on-year basis, Total Nigeria generated sales revenue of under ₦152 billion at the end of the third quarter operations in September 2020. This represents a drop of roughly 32 percent year-on-year — speeding up from 29 percent drop at half-year. Petroleum products — the main revenue line of the company, continued to lead earnings drop at 35 percent at the end of the third quarter.
The cut down in the cost of sales in the third quarter improved the year-on-year position with input cost dropping slightly ahead of sales revenue at 33.6 percent to ₦130.7 billion. That strengthened gross profit from the half-year position though it still dropped by 16 percent to close at ₦21 billion at the end of September 2020.
Other challenges on the cost and income sides have remained. These include a continuing decline in other income, increase in other expenses and an inability to curtail selling/distribution and administrative expenses alongside the dropping sales revenue.
Despite the operating challenges, the company was able to overturn an operating loss of ₦717 million at the end of half-year operations into an operating profit of ₦1.3 billion at the end of the third quarter. The figure still represents a huge drop of roughly 78 percent in operating profit year-on-year.
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The drop in finance expenses is accompanied by a windfall from finance income. Led by earnings from petroleum subsidy fund, finance income surged up from ₦287 million to over ₦2.2 billion year-on-year. Finance expenses dropped by 58 percent to ₦2.6 billion over the same period. This brought down net finance cost from ₦5.8 billion in the same period in 2019 to about ₦369 million at the end of the third quarter.
The drop in finance expenses is the gain from deleveraging the balance sheet. Interest-bearing debts continue to drop from close to N40 billion at the end of 2019 to ₦25 billion at the end of the third quarter.
Total Nigeria closed the third quarter operations with an after-tax profit of ₦500 million, a rebound from a loss of ₦537 million at half-year and a loss of ₦205 million in the same period in 2019. The final quarter is promising to strengthen the profit performance from the third quarter mark.
The company earned ₦1.47 per share at the end of the third quarter, a turnaround from a loss of 60 kobo per share in the same period last year. It closed the 2019 financial year with earnings per share of ₦6.71 all of which it gave out to shareholders in cash dividend.
