Totalenergies Expects To Sustain Profit Drop in Q3

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Totalenergies Marketing Nigeria Plc expects that a profit drop it suffered in the second quarter will widen to 53 per cent in the third, according to the forecast. The energy marketing company saw its profit plunge by over 18 per cent quarter-on-quarter to N4.2 billion in the second quarter and a steeper drop to N2.5 billion is to be expected for the third quarter.

With the downward movement, the company has lost the high growth momentum with which it lifted after-tax profit more than eight times to N16.7 billion in 2021. It is also a loss of momentum for the company from the top record growth of 47 per cent in after-tax profit to N4.3 billion in the first quarter.

The strength of the first quarter has been diluted by the weakness of the second, leaving the half-year profit figure moderately up at N8.5 billion. Further dilution expected in the third quarter will result in a profit drop year-on-year from the N13.4 billion after-tax profit in the same period last year. Cost increases generally overtook revenue growth of the company in the second quarter and the development is expected to worsen in the third quarter. 

The company’s interim financial report for the six months ended June 2022 shows that rising cost is the main problem while revenue growth has been maintained so far. Last year’s exceptional growth was driven by a rebound in sales revenue combined with considerable cost savings. 

While the company has retained the strength in revenue performance so far this year, it has lost the moderated cost advantage that stretched out margins and powered the flow of revenue into the bottom line in 2021. 

Input cost posed a major hurdle in operations in the second quarter and led to cost increases that resulted in a sudden drop in profit in the quarter. It grew ahead of sales revenue by 36 per cent to N96 billion quarter-on-quarter compared to 31.6 per cent growth in sales to N111.4 billion for the quarter. 

The impact of the development is that cost of sales consumed as much as N25.4 billion of the N26.8 billion increase in sales revenue for the quarter. The proportion of sales revenue claimed by the cost of sales rose from 83.4 per cent to 86.3 per cent quarter-on-quarter. The incursion limited the increase in gross profit to 9.2 per cent to close at N15.3 billion for the quarter.

Further pressure from the side of cost arose from selling and distribution expenses, which grew by 57.4 per cent quarter-on-quarter to N1.2 billion. This was further extended by a drop of 47 per cent in other income as well as a more than five times jump in impairment loss on financial assets to N224 million over the same period.

With the cost increases, operating profit for the quarter dropped by 14 per cent to N6.9 billion. There were major increases in finance income and cost, leading to an increase of 20 per cent in net finance cost quarter-on-quarter to N727 million. That widened the margin of drop in pre-tax profit to 16.8 per cent, amounting to N6.2 billion for the second quarter. 

The six-month position for Totalenergies at the end of June 2022 shows a sustaining strong growth in revenue but cost increases in the second quarter diluted profit performance. Turnover grew by 38 per cent year-on-year to N209 billion at the end of half-year operations, a slowdown however from 46 per cent growth in the first quarter.

Cost of sales however grew ahead of sales at 42.4 per cent year-on-year to close at over N179 billion at the half year. The cost encroachment lowered the gross profit margin from 16.8 per cent in the same period last year to 14.2 per cent at the end of June 2022. That limited the increase in gross profit to 16.9 per cent to N29.8 billion at the half year.

With stronger performance in the first quarter than in the second, the margin of drop in other income and increases in operating expenses in the second quarter was diluted significantly in the half-year numbers. Other income went down by 29.6 per cent to N1.7 billion while selling and distribution cost grew by 45 per cent to N2.3 billion.

Administrative expenses grew by 12 per cent year-on-year to N15.4 billion, down from a 15.6 per cent increase quarter-on-quarter in the second quarter. The moderated position at the half year enabled the company to improve operating profit by 8 per cent to N13.5 billion.

A finance income of N1.1 billion for the company at half a year comes as a windfall compared to less than N95 million in the same period in 2021. This is followed by equally strong growth in finance expenses at about 129 per cent to N1.9 billion. A net finance cost of N804 million represents an increase of 7.6 per cent year-on-year.

Rising finance expenses reflect a close to four times increase in the company’s borrowings in six months from N15 billion at the end of last year to N57.5 billion at the half year. 

The company’s closing after-tax profit of N8.5 billion at half a year indicates a loss of profit margin from 5.3 per cent at the same time last year to 4.1 per cent at the end of June 2022.

The company’s forecast for the third quarter indicates that another lean quarter is to be expected with the sales revenue to drop from N91 billion to N72 billion and profit to plunge from N5.3 billion to N2.5 billion quarter-on-quarter.

The company earned N25.12 per share in the half year, improving from N23.76 per share in the same period in 2021.