TotalEnergies faces rising cost, profit drops in Q2

TotalEnergies Marketing Nigeria Plc faced a difficult operating environment in the second quarter, as cost increases generally overtook revenue growth. Margins shrank and profit went down by over 18 percent quarter-on-quarter to N4.2 billion for the energy marketing company.

The company’s interim financial report for the six months ended June 2022 shows that the profit drop in the second quarter was largely remedied by strong growth in the first quarter, leaving the half year profit figure moderately up at N8.5 billion.

TotalEnergies had grown after tax profit by 47 percent to N4.3 billion in the first quarter but the profit leap it experienced in the second quarter of last year gave way to a drop this year. So far, the company has lost the high growth momentum of the preceding financial year when it lifted after tax profit more than eight times to N16.7 billion.

Last year’s performance was driven by strong recovery and growth in sales revenue combined with considerable cost savings. This year, the company is still going strong on revenue growth but costs have changed their moderating behaviour to a revenue-consuming surge.

Cost of sales grew ahead of sales revenue at 36 percent to N96 billion quarter-on-quarter compared to 31.6 percent growth in sales to N111.4 billion for the quarter. Cost of sales consumed 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 percent to 86.3 percent quarter-on-quarter. The incursion limited the increase in gross profit to 9.2 percent to close at N15.3 billion for the quarter.

Further pressure from the side of cost came from selling and distribution expenses, which rose by 57.4 percent quarter-on-quarter to N1.2 billion. This was further extended by a drop of 47 percent in other income as well as 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 percent to N6.9 billion. There were major increases in finance income and cost, leading to an increase of 20 percent in net finance cost quarter-on-quarter to N727 million. That widened the drop margin in pre-tax profit to 16.8 percent, amounting to N6.2 billion for the second quarter.

The year-on-year position for TotalEnergies at half year shows a sustaining strong growth in revenue but cost increases in the second quarter have diluted profit performance. Turnover amounted to N209 billion at the end of half year operations in June 2022, which is an increase of 38 percent year-on-year.

Cost of sales however grew ahead of sales at 42.4 percent year-on-year to close at over N179 billion at half year. The cost encroachment lowered gross profit margin from 16.8 percent in the same period last year to 14.2 percent at the end of June 2022. That limited the increase in gross profit to 16.9 percent to N29.8 billion at 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 percent to N1.7 billion while selling and distribution cost grew by 45 percent to N2.3 billion.

Administrative expenses grew by 12 percent year-on-year to N15.4 billion, down from 15.6 percent increase quarter-on-quarter in the second quarter.

The moderated position at half year enabled the company to improve operating profit by 8 percent to N13.5 billion.

A finance income of N1.1 billion for the company at half year stands like 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 percent to N1.9 billion. A net finance cost of N804 million represents an increase of 7.6 percent 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 year indicates a loss of profit margin from 5.3 percent at the same time last year to 4.1 percent at the end of June 2022.