Total Nigeria: From The Pink, Back In The Red
Total Nigeria stepped back into a loss at the end of the third quarter after managing to close one step away from it at half year. A modest finance income had helped the company escape from its first quarter loss in the second quarter but net finance expenses more than doubled at the end of the third quarter.
The oil marketing company lost its meager profit of N130 million at half year and built a net loss of N205 million at the end of the third quarter in September 2019. As indicated earlier, Total Nigeria faces high prospects for the worst operating year in many years in 2019.
The company’s track record of robust earnings and cash dividend seems to face a road block this year. The usual interim dividend of N3 per share at the end of the third quarter failed to happen. Retained earnings are however robust enough to still permit cash dividend at full year.
Yet the cash flow for dividend payout isn’t in place for now.
Loss of more than N5 billion in sales revenue so far this year is at the centre of the company’s operating difficulties. The inability to contain costs keeps on extending the impact of revenue losses on the bottom line.
It is for the company and its shareholders a major downturn in fortune from a net profit of about N7.7 billion in the same period last year to a loss of N205 million at the end of the third quarter this year.
As experienced at half year, finance expenses were large enough to consume more than the entire operating profit. Input cost increased as revenue declined and that was equally true of administrative expenses – both of which claimed increased proportions of sales revenue and squeezed margins further.
The company’s rising interest expenses follow increased borrowings – which in turn continues to stem from cash flow difficulties facing the company. Cash flow challenges remain elevated, as operating activities remain a net consumer of cash resources for the second year. Net cash used in operating activities is up from N5.2 billion in the same period last year to N7.4 billion at the end of the third quarter this year though a drop from over N14 billion at half year.
The outlook indicates that the loss position would follow the company to full year with further loss likely in the final quarter. Its critical earning period is in the first half, which produced 71 percent of the full year profit in 2018.
Weakening profit performance has been on since 2017 – when the company lost 46 percent of after tax profit. A slight decline was also experienced in 2018 while the worst performance since the beginning of the present decade seems to be in the making for Total Nigeria in 2019.
Third quarter operations closed with sales revenue of N221.83 billion, a decline of 2.2 percent year-on-year and a moderation from a decline of 3.5 percent at half year. Despite a reduction in the margin, it was still a loss of over N5 billion in sales revenue during the period.
With the step up in the third quarter, turnover projection is revised upward from N285 billion to N297 billion for Total Nigeria at the 2019 close. This will reduce the expected margin of drop from 7 percent to 3.6 percent from the closing revenue figure of N308 billion in 2018. The company had improved turnover by 7 percent in 2018.
As big as the company’s sales revenue at nearly N222 billion, it was insufficient to meet all expenses. Interest charges still consumed more than the operating profit for the period as happened at half year. From one step away from a loss at half year, the company again submerged into a loss at the end of the third quarter.
From an after tax profit of N130 million at half year, Total Nigeria closed the third quarter with a net loss of almost N205 million. This is a big drop from the after tax profit of N7.66 billion in the same period in 2018. It is the worst performance record for the company in a decade at least.
A surprise isn’t expected in the final quarter in the light of the prevailing cost-income situation so far in the year. Cost of sales increased in the third quarter as sales revenue declined – consuming 89 percent of turnover against 86 percent in the same period in the prior year. That resulted in a drop of 19 percent in gross profit to a little over N25 billion at the end of the third quarter.
Further strain continued to come from administrative expenses, which rose by 23 percent to N17.5 billion, claiming almost 70 percent of gross profit. That slashed operating profit by 60 percent to N5.74 billion – which was insufficient to meet finance expenses during the period.
Net finance charges rose by 110 percent to N5.86 billion over the period and consumed more than the entire operating profit. Rising finance expenses continue to reflect sharp growth in balance sheet borrowings. The company’s borrowings grew further in the third quarter. At close to N54 billion at the end of the period, balance sheet debts have grown by 57.4 percent over the closing figure last year. The company’s debt profile has multiplied more than three times from N13 billion in 2017.
Total Nigeria ended the third quarter with a loss per share of 60 kobo, down from earnings per share of 38 kobo at half year and N22.58 per share in the same period last year. The company earned N23.45 per share at the end of 2018 operations and paid a total cash dividend of N17 per share. A dividend holiday looks quite likely for shareholders of Total Nigeria at the end of the current year.
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