Total Nigeria enters the speed track for profit drive

Total Nigeria is evidently one of the few companies on the speed track of the corporate profit highway in 2016. The petroleum products marketer is unable to grow sales revenue so far but showed a surprising leap of over 530% in after tax profit at the end of the first quarter. This hasn’t happened out of a windfall but a favourable rebalancing of the cost-income relationship that has saved good money for the company from three major expenditure lines.

With a major gain in profit margin, Total Nigeria has gained new momentum on profit growth in the current year. Despite a sluggish start, sales revenue is headed up to the 2014 high with a chance of registering a new peak after a drop in 2015. After tax profit could also triple at full year at the current growth rate. The company used to lead the entire market of listed companies by earnings per share until the oil market-induced declivity undermined its growth functions in 2009.

For the first time since 2008, Total Nigeria is again pressing for market wide leadership of listed equities by earnings per share. The company looks like one of the few fertile grounds where the biggest shareholder wealth will be created in 2016 going by the exceptional growth rate seen in the first quarter.

Sales revenue was slightly down for the company in the first quarter – a period that was marked by serious product shortages. Turnover slipped by 0.5% year-on-year to about N59.71 billion for Total Nigeria at the end of the first quarter, sustaining revenue decline for the second year. Full year outlook however indicates a rebound in sales revenue to reclaim the revenue losses sustained in 2015.

Turnover is projected at N241.3 billion for Total Nigeria in 2016, an expected increase from N208.3 billion last year and slightly above the company’s peak revenue figure of N240.62 billion recorded in 2014. The company had maintained stable growth in sales revenue in recent years until the decline in 2015.

The big event for Total Nigeria so far this year is an outlandish rise of 530.6% in after tax profit out of the slip in sales revenue at the end of the first quarter. At N2.82 billion in the first quarter, after tax profit was already about 70% of the full year figure in 2015.

Based on the first quarter growth rate, after tax profit is projected at N11.81 billion for Total Nigeria at the end of 2016. That is indicating that the company could get close to tripling profit at full year. Total Nigeria had lost profit for the second year in 2015 from its peak profit figure of N5.33 billion in 2013.

The exceptional growth in profit in the first quarter came from increased cost efficiency gained in the company’s three major expense lines – cost of sales, administrative and interest expenses. Against a flat growth in sales revenue, cost of sales declined by 5%, adding about N2.7 billion to gross profit. That swelled gross profit by 35.7% to N8.89 billion during the review period.

The second major cost saving came from administrative expenses, which went down by about 8%, thereby achieving a reduced cost per unit of sales revenue. Another favourable development happened on the revenue side – which is an upsurge of 343% in other income during the period. These changes caused a cheering leap of 223% in operating profit in the first quarter.

The third element of the company’s cost saving tripod is in respect of finance cost, which dropped by 45% to N166 million year-on-year. The company had balance sheet debts of N14.81 billion at the end of the first quarter.

A sharp reduction in the cost-income ratio happened in the first quarter, lifting net profit margin from 0.7% in the first quarter of last year to 4.7% at the end of March 2016. This is the highest profit margin the company has recorded in many years.

Total Nigeria earned N8.32 per share at the end of the first quarter, up from N1.32 in the same period last year. Full year outlook indicates earnings per share of N34.78 for Total Nigeria in 2016. The company earned N11.92 per share at the end of 2015 and paid out a total cash dividend of N14 per share last week.