Totalenergies Marketing Nigeria Plc has trimmed the input costs that have consumed revenue and caused profits to drop since 2022.
Cost of sales has slowed down from over 44 per cent increase in the first quarter to 24 per cent in the second to N119 billion. At the same time, sales revenue grew ahead of the cost of sales in the second quarter at 25 per cent to over N139 billion.
The unaudited financial report of the energy marketing company for the half year ended June 2023 shows the change in the cost-income pattern as the critical factor in upturning the company’s downward climb in profit during the period.
Input cost had grown well ahead of sales revenue in the first quarter at over 44 per cent compared to 38.6 per cent but the change in pattern in the second quarter has built-in cost saving that has strengthened the bottom line.
At N120.3 billion in the first quarter, the cost of sales consumed 89 per cent of sales revenue, which went down to 85.6 per cent in the second quarter.
The cost saving provided the strength for the company to push gross profit up ahead of sales at 30.8 per cent to N20 billion for the second quarter. This is a big step forward from an increase of 3.6 per cent in gross profit to N15 billion in the first quarter.
Other challenges from the side of cost still prevailed in the second quarter to keep margins down. These include a net foreign exchange loss of N1.5 billion that occurred in the quarter and a major increase of 28.8 per cent in administrative expenses to over N10 billion for the quarter.
The two cost increases claimed increased proportions of gross profit and lowered the margin of increase in operating profit to 18.5 per cent to close at N8 billion for the second quarter.
Further pressure from the side of the cost came from finance expenses that grew by 40.4 per cent in the second quarter to N1.6 billion. With a slower increase in finance income at 15 per cent to N504 million, net finance cost rose by 55.6 per cent to N1.1 billion for the quarter.
The cost increases compressed margins and again reduced the margin of increase in pre-tax profit to 14 per cent to N7 billion in the second quarter. After-tax profit grew by 11 per cent year-on-year to N4.6 billion in the second quarter, better than under N4.2 billion the company recorded in the first quarter.
The company’s half-year numbers are a dilution of an improved second quarter and a weak first quarter, giving a moderate upturn that still leaves margins down.
Sales revenue went up by 31.4 per cent year-on-year to N274.6 billion at half year but the slowdown in cost of sales in the second quarter was insufficient to achieve a moderated growth at the end of the period.
Cost of sales still grew ahead of sales at 33.7 per cent to N239.6 billion, which limited the improvement in gross profit to 17.6 per cent to N35 billion at half year.
The impact of the net foreign exchange loss of N1.5 billion incurred in the second quarter was partly tempered by a 6 per cent drop in selling and distribution cost to N2.2 billion and a slowdown in administrative expenses at an increase of 16.2 per cent to N17.9 billion at the half year.
Operating profit improved by 14.2 per cent to N15.5 billion at the half year, stretching out from a 9.8 per cent increase in the first quarter.
Rapidly rising cost of finance remains a challenge at an increase of over 68 per cent to N3.2 billion at the end of June 2023, a slowdown however from a 110.6 per cent upsurge in the first quarter.
With a finance income of N1.2 billion, net finance cost jumped nearly two and a half times to a little under N2 billion at the end of the review period. The increase drained much of the gain in operating profit and slowed the margin of increase in pre-tax profit to 5.8 per cent to N13.5 billion at half year.
The increase in after-tax profit went down further at 3 per cent to roughly N8.8 billion, a mild upturn from a decline of 4.6 per cent in the first quarter. Profit margin stays down at 3.2 per cent at half-year compared to 4.1 per cent in the same period in 2022.
Totalenergies’ borrowings keep expanding from N47.7 billion at the end of 2022 to N52.6 billion at the end of March and further to about N67 billion at the end of June 2023.
The company closed the half-year operations with earnings per share of N25.88, slightly up from N25.12 in the same period last year.
Whether the upside forces seen in the second quarter would sustain or not will be the key point to watch in the company’s earnings story in the second half.
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