Total Nigeria: Biggest earnings leap in record

Total Nigeria’s expected big haul from 2016 operations has been realised. The oil marketing company, in line with our earnings projections, lifted sales revenue by 40% – the strongest revenue growth record in several years. Also, as projected, the company multiplied profit more than three and half times to register the biggest profit advance in many years.

As expected, Total has stirred the corporate earnings quarters from a year that has gone down in records as one of the worst years for both producers and consumers. It is no doubt one of the few fertile grounds where the biggest shareholder wealth was created in 2016.

The company’s generous dividend pay-out policy seems to vanish at a time of its biggest harvest. From a leading earnings per share record of N43.58, shareholders can look forward to a lower than expected final dividend of N7 per share in addition to an interim of N3 paid last year.

Total Nigeria has reported a turnover of about N291 billion for the 2016 operations, just 1.3% shot of the projected N295 billion for the year. That has established a new peak in sales well ahead of the 2014 record of N240.62 billion. This is a major rebound propped up by the increase in products prices and stable products supplies after sales revenue dropped to a four-year low in 2015.

Total has posted an after tax profit of N14.8 billion for its 2016 trading, a top record growth of 265.4% and slightly below the projected figure of N15.8 billion. This is a big turnaround for a company that lost profit in each of the preceding two years and now earning in one year more than all the profits in the preceding three years put together.

The profit growth of 265% from a 40% improvement in turnover shows a major drop in the cost-income ratio during the year. The company achieved a significantly increased cost efficiency in its three major expense lines – cost of sales, administrative and interest expenses. Cost of sales moderated at an increase of 32% and therefore claimed a reduced share of turnover.

This means that a good part of the increase in sales revenue flowed down into gross profit. The resulting cost saving achieved caused gross profit to nearly double from N24.75 billion in the preceding year to N49.10 billion at the end of 2016.

There was also a major cost saving from administrative expenses, which moderated relative to revenue at an increase of 5% in the year. With an increase of over 20% in  other income and a flat growth in selling and distribution costs, operating profit advanced by 235% to N20.93 billion despite the appearance of other expenses of N9.06 billion in the year.

The third element of the company’s cost saving and profit building developments in the year is a drop of 52% in finance expenses to N852 million at the end of the year. There was equally a big drop of nearly 87% in finance income during the same the period, which changed the company’s position from a net finance income of N240 million in 2015 to a net finance cost of N578 million in 2016.

The company raised its balance sheet debts from N1.64 billion at the end of the third quarter to N9.22 billion at full year. That still represents a drop of 32% from the preceding year’s figure of N13.59 billion.

The reduction in the company’s borrowings appears to reflect its significant improvement in the cash flow position. Net cash generated from operating activities grew by over 59% to about N17 billion, which met all the company’s cash requirements for investing and financing activities and yet left a net cash increase of over N11 billion.

The reduction in the cost-income ratio lifted net profit margin from 1.9% at the end of 2015 to 5.1% at the end of the 2016. The company hasn’t seen such ability to covert revenue into profit in many years.

Total Nigeria ended the 2016 operations with earnings per share of N43.58, rising sharply from N11.92 in 2015. Shareholders apparently expected far more than the N7 per share final dividend the company has proposed. It paid an interim dividend of N3.0 per share last year.

The company is known for its high dividend pay-out ratio, which has not been sustained for the 2016 dividend decision. It earned N11.92 per share in 2015 and paid out a total cash dividend of N14 per share. The company’s register for the 2016 final dividend will close between 17th and 21st April while payment is scheduled for 12th June, 2017.