Total Nigeria broke free from two major restrictive cost lines in the third quarter and escaped from losses built in the first two quarters of the year. The oil marketing company hammered cost of sales and slashed finance expenses and extracted a profit of N1 billion in the third quarter.
Operating pressure persisted during the quarter with sales revenue dropping by close to 37 per cent quarter-on-quarter. Management cut down input cost by a wider margin of 42 per cent and with the cost-saving, it was able to raise gross profit against the large drop in turnover in the quarter.
A much bigger cost saving came from a drop of 72 percent in finance expenses to N611 million for the third quarter. The two major developments provided the strength for profit in the face of accelerating drop in turnover. This is a rebound from a loss of N334 million in the same quarter in 2019.
Some support also came from administrative cost, which slowed down in the third quarter compared with the second when administrative expenses exceeded gross profit. Also, an operating loss of N1.6 billion in the second quarter changed to an operating profit of almost N2 billion in the third quarter.
The rebound in the third quarter enabled the company to overwrite a net loss of N537 million at the end of half year operations in June and turned the bottom line into the blue to the tune of N500 million at the end of the third quarter.
The ability to extract a profit from a near 37 percent fall in sales is the game-changer for Total Nigeria in the third quarter. The continuing drop in sales by a market leader remains a strong bearish point on the company this year.
On year-on-year basis, Total Nigeria closed the third quarter operations in September 2020 with sales revenue of N151.7 billion, a drop of 31.6 percent year-on-year – extending further 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 company lost 5 percent of sales revenue in 2019 and an accelerated drop is in focus this year. At current rate, Total Nigeria is headed for the lowest revenue figure in five years.
At N130.7 billion, input cost went down slightly ahead of sales revenue at the end of the third quarter at 33.6 percent year-on-year. That lowered the pace of drop in gross profit from 26 percent at half year to 16 percent at the end of September 2020 to close at N21 billion.
Other income continued to decline while other expenses grew over the review period. Selling and distribution expenses remained sticky downward – declining at less than half as much as sales revenue. Administrative cost maintained a slight increase at 2.2 percent to close at a little below N18 billion at the end of the third quarter.
Cost saving from input expenses provided the strength for the company to overturn an operating loss of N717 million at the end of half year operations into an operating profit of N1.3 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.
The windfall from finance income seen at half year was maintained at the end of the third quarter and so was the big drop in finance expenses. Finance income, led by earnings from petroleum subsidy fund, grew from N287 million to over N2.2 billion year-on-year. However the quarter-on-quarter reading showed a drop in finance income in the third quarter.
Over the same period, finance expenses dropped by 58 per cent to N2.6 billion. Yet the loss of momentum in finance income in the third quarter caused a shift from a net finance income status of over N1.2 billion at half year to net finance cost of about N369 million at the end of the third quarter. It was nevertheless a big drop from a net finance cost of N5.8 billion in the same period in 2019.
The drop in finance expenses is the gain from a sustaining cut down in the company’s balance sheet borrowings. Interest-bearing debts have continued to drop from close to N40 billion at the end of 2019 to less than N38 billion in the first quarter, down to N31 billion at half year and further to N25 billion at the end of the third quarter.
Total Nigeria closed half year operations with an after-tax profit of N500 million, up from a loss of N537 million at half-year and a loss of N205 million in the same period in 2019. A net profit of N1 billion enabled the profit dressing the company was able to put on at the end of September 2020.
The company closed the third quarter with earnings per share of N1.47 against a loss of 60 kobo per share in the same period last year. It earned N6.71 per share at the end of the 2019 financial year and gave it all out to shareholders in cash dividend.
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