Total Nigeria: Worst Performance In Years
Total Nigeria managed to build back into profit at a full year from a third-quarter loss, as the company’s management trimmed the cost of sales in the final quarter. It was nevertheless the worst earnings performance in many years as projected at the end of the third quarter that “Total Nigeria faces high prospects for the worst operating year in many years in 2019”.
The company’s unaudited report for the 2019 full year shows that cost of sales dropped by 22 percent year-on-year in the final quarter. That meant a cost-saving of as much as N17 billion over the period. The result was a 129 percent leap in gross profit in the fourth quarter that gave a big boost to the full-year position.
Three other major developments in the final quarter helped the company return to profit at the end of the year. These include outstanding growth in other income from N400 million in the same period in 2018 to N3.2 billion at the end of the fourth quarter. Other expenses of N1.3 billion dropped to nil over the same period and impairment loss on trade receivables fell by 98 percent year-on-year to N10.5 million at the end of the quarter.
These developments lifted the company’s position from an operating loss of N4.4 billion in the fourth quarter of 2018 to an operating profit of N4.6 billion in the closing quarter of 2019. The effect on the full year position is that a decline in gross profit turned into a moderate improvement in operating profit.
The final quarter also recorded a big disappointment that turned the increase in operating profit at a full year into a huge drop in pre-tax profit. That was a drop of 87 percent in finance income to N862 million year-on-year at the end of the quarter. This was followed by a 19 percent growth in finance expenses during the same period.
This caused a shift from a net finance income of over N5 billion in the same period in the preceding year to net finance expenses of N848 million in the fourth quarter of 2019. The full-year position, therefore, saw a shift from a net finance income of N2.3 billion in 2018 to a net finance cost of N6.7 billion.
Net finance expenses consumed 65 percent of operating profit and caused a drop of 70 percent in pre-tax profit. This is a sustained drop in profit for the third year running from the company’s peak after-tax profit figure of N14.8 billion in 2016.
The company’s rising interest expenses follows huge balance sheet borrowings, which stood at about N36 billion at the end of 2019. New borrowings were needed to tide over cash flow difficulties the company faced in the year. Cash flow challenges were addressed significantly in the final quarter but the company still needed to borrow to meet its financing activities.
Total Nigeria closed full-year operations for 2019 with sales revenue of roughly N291 billion, a decline of 5.5 percent compared to an increase of 7 percent in the preceding year. Revenue losses increased in the final quarter when turnover fell by 15 percent. That raised the full-year margin of decline from 2.2 percent in the third quarter to 5.5 percent at full year.
The full-year sales revenue figure is 2 percent short of the N297 billion projected for Total Nigeria for 2019. It is about the same sales revenue the company reported four years ago in 2016. Its turnover records show a pattern of rise and fall over the past five years.
A favourable development for the company in the final quarter is that cost of sales dropped well ahead of sales revenue at 22 percent compared to 15 percent. That provided a big cost saving that multiplied gross profit more than two times year-on-year in the final quarter and reduced the margin of decline at full year. At N33.7 billion, gross profit declined by 2.7 percent at the end of the year.
Four other favourable developments in the year enabled the company to turn the decline in gross profit into an increase in operating profit. These include an upsurge of 217 percent in other income – which amounted to N4.6 billion at the end of the year. There was also a complete disappearance of other expenses that were as large as N1.3 billion in the prior year.
The other favourable developments are a drop of 14 percent in selling and distribution expenses to N3.8 billion and a drop of 39 percent in impairment loss on trade receivables. The revenue enhancement and cost-saving developments resulted in an increase of 5.6 percent in operating profit to N10.4 billion at the end of the year.
Two adverse developments followed that were big enough to turn the increase in operating profit into a sharp fall in profit. These are a drop of 83 percent in finance income to N1.1 billion and a rise of 76 percent in finance expenses to N7.8 billion. That turned the table for the company from a net finance income of N2.3 billion in 2018 to a net finance cost of N6.7 billion at the end of 2019.
Net interest charges consumed 65 percent of operating profit for the year. That caused a drop of 70 percent in pre-tax profit to N3.6 billion at the end of the year. The company closed the year with an after-tax profit of N2.4 billion, a drop of 69.6 percent from the 2018 profit figure of close to N8 billion.
The cost saving in the final quarter helped the company to build back to profit from a net loss of almost N205 million at the end of the third quarter. It is nevertheless the worst performance record for the company in a decade at least. Total Nigeria has lost profit every year since its peak profit record of N14.8 billion in 2016.
The company cut down its borrowings in the final quarter from close to N54 billion at the end of September 2019 to a little below N36 billion at full year. This follows an improvement in cash flow though new borrowings were still contracted to meet financing activities.
Total Nigeria ended the 2019 operations with earnings per share of N7.13, down from N23.45 in the preceding year. Dividend information, if any, is expected to come with the release of the company’s audited report.
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