Company Analysis

Total Nigeria expects profit recovery from preceding year’s drop


Total Nigeria expects to show a profit rebound in its 2018 full year earnings report being awaited after a drop of 46% in after tax profit in the 2017 financial year. The recovery isn’t going to be strong enough to match the company’s peak profit figure of nearly N15 billion in 2016. It is however expected to be good enough to push profit up to the second highest figure in the company’s operating history.

The oil marketing company closed the 2017 trading with an after tax profit of N8 billion, dropping from N14.80 billion in 2016. It is expected to close the 2018 operations with profit in the region of N10 billion – a clear 25% leap forward.

The challenge for the company in 2018 remained the inability to grow sales revenue after a marginal decline in 2017. That has registered adversely on cash flow to the extent of operating activities becoming a net consumer of cash in the face of increased investing activities. Balance sheet debts have multiplied as a result.

The company closed the third quarter operations with sales revenue of N227 billion – a year-on-year increase of 2.7%. Turnover is estimate to be in the region of N300 billion for Total Nigeria at the end of 2018. That will be an increase of 4% over the closing sales revenue figure of N288 billion at the end of 2017.

A major favourable development during the review period is a slight decline in cost of sales, which improved gross profit margin from 10.2% to 13.6%. That enabled a 37% growth in gross profit to N31 billion at the end of the third quarter.

There was a drop of 69% in other income to slightly over N1 billion, a growth of 17% in selling/distribution costs and an increase of 7% in administrative expenses. The company still grew operating profit by 48% to N14.23 billion over the period.

Another sharp drop in revenue lines came from finance income, which fell by 90% to N233 million at the end of the third quarter. At the same time, finance expenses grew by 38% to over N3 billion, causing a shift from a moderate net finance income to net finance expense of N2.8 billion over the review period.

Savings made from the decline in input cost enabled the company to absorb the cost increases and counter income disappointments to improve profit margin. It closed the third quarter operations with an after tax profit of N7.66 billion. This represents a year-on-year increase of 28.5%.

The company gained profit margin from 2.7% in the same period in 2017 to 3.4% at the end of September 2018. The full year profit is estimated to be in the region of N10 billion for Total Nigeria in 2018 – the second highest net profit number in record.

The sharp drop in finance income follows an equally sharp drop of 64% in cash balances to N4.42 billion from the closing figure in the preceding year. The company’s cash flow position remained under pressure at the end of the third quarter. Against a net cash generated from operating activities of N7.65 billion at the end of 2017, the company ended the third quarter of 2018 with a net cash used in operating activities of over N5 billion.

Further strains came from increased investing activities, a large increase in borrowings and the accompanying interest payments. The company closed the period with a negative cash flow position of over N25 billion. Management had to raise short-term borrowings from N13 billion at the end of 2017 to close to N36 billion at the end of September 2018.

Total Nigeria earned N22.58 per share at the end of the third quarter, improving from N17.54 in the same period in the prior year. The full year earnings per share expectation is N29.54. The company paid an interim cash dividend of N3 per share last December. Its total dividend per share has been unchanged at N17 per share over the preceding two years.

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