TotalEnergies losing profit for 2nd year at N4.2bn in Q1

Totalenergies Marketing Nigeria Plc is growing sales but losing profit and this is happening for the second financial year. While sales revenue grew by as much as N37.7 billion or 38.6 percent year-on-year to N135.3 billion in the first quarter (Q1), the company’s after-tax profit went down by 4.6 percent to less than N4.2 billion over the period.

The interim financial report of the energy marketing company for the three months ended March 2023, shows that cost saving is missing so far in the earnings story just as it happened in the preceding year.

For the second year, the company’s cost structure has detracted from the moderated behaviour with which it multiplied after-tax profit more than eight times to N16.8 billion in 2021.

Cost of sales advanced by N37.2 billion or 44.3 percent year-on-year to N120.3 billion in Q1 and consumed virtually the entire sales revenue gain.

This was the pattern last year as well when cost of sales rose ahead of turnover at 47.5 percent compared to 41.4 percent to close at over N422 billion at full year. That squeezed margins and reduced the closing profit for the year to N16.4 billion.

Yet, the company had begun last year on a strong footing with a profit leap of 47 percent to N4.3 billion in Q1.

Cost of input claimed 89 percent of sales revenue in Q1, rising from 85 percent in the same quarter last year and further up from 87.5 percent at the end of the 2022 financial year.

With the encroachment of cost of sales, gross profit only inched up 3.6 percent to N15 billion at the end of March 2023.

Some cost savings and gain in other income, however, helped the company to temper the effect of input cost and improve operating profit.

Other income improved by 8.5 percent year-on-year to N968.6 million — which was supported by cost savings from selling and distribution cost and administrative expenses.

At less than N916 million, selling and distribution expenses dropped by 21.1 percent, and administrative cost only edged up by 3 percent to N7.8 billion over the review period.

The developments enabled an increase of 9.8 percent in operating profit to close at N7.3 billion for Q1. However, rising cost of finance did not let the gain in operating profit get down to the bottom line.

Finance expenses rose by 110.6 percent year-on-year to N1.6 billion in the first quarter after having multiplied more than three times to close at N5.5 billion in 2022.

With a net finance income of N746 million, net finance cost jumped from only N77.6 million in the same period last year to over N858 million at the end of the Q1. The increase caused a decline in pre-tax profit from N6.6 billion to N6.4 billion over the period.

TotalEnergies’ borrowings are moderately up from the closing figure of N47.7 billion in 2022 to N52.6 billion at the end of March 2023.

The company lost profit margin from 4.5 percent in the same period in 2022 to 3.1 percent at the end of the Q1 of 2023.

Whether the company would slow down rising input cost and stretch out profit margin in the incoming interims are the critical developments to watch out for in the course of the current financial year.