Total Nigeria Profit Falls the most in two Years

Total Nigeria plc’s first quarter (Q1) profit fall of 78.18 percent is the weakest performance for the downstream oil and gas firm in two years. The 78.18 percent dip in profit is lower than the 7 percent and 6.1 percent growth it recorded in 2014 and 2013, respectively.

Profit was N223.1 million in 2015, compared with N1.06 billion the previous year, the Lagos-based company said in an e-mailed statement.

Sales were down 1 percent to N60.04 billion as the company grapples with challenging operating environment. The company’s faltering performance can be attributed to spiraling operating expenses. Operating expenses were up by 14.31 percent to N5.73 billion in 2015 from N5.01 billion as of March 2014. Cost of sales remained flattish at N53.50 billion.

Total Nigeria’s cost of sales ratio was as high as 89.10 percent, which culminated in a 7.7 percent drop in gross profit.

Net margin, a measure of profitability and efficiency, was down to 0.37 percent in 2015 from 1.79 percent in 2014.

The low margin of 0.37 percent is peculiar to downstream oil and gas firms as they do not control the selling price of their products. These prices are fixed by the government in form of subsidy payments.

The low margins also expose these firms to currency risks.

“There are risks in the downstream book because the margins to these businesses are quite thin and could get eroded by currency devaluation,” said analysts at Renaissance Capital in a December 1, 2014, research note obtained by BusinessDay.

Hitherto, these firms had complained about the low margins of about N4.65 per litre they claimed was inadequate.

The industry net margin for the first quarter of 2015 is less than 1 percent based on data compiled by BusinessDay.

Nigeria central bank scrapped its bi-weekly currency auctions in February 2015, and the apex bank said it would sell dollars only at the interbank close to the N198 mark, a move that amounts to a de facto devaluation of the currency.

Total Nigeria’s finance costs reduced by 18.85 percent despite delayed subsidy payments.

The company’s debt to equity ratio was 120.14 percent. This means that large chunks of Total Nigeria’s balance sheet are funded by lenders.

Total Nigeria’s share price was up 14.92 percent in the past year to close at N165 on the NSE, while market capitalisation was N56.02 billion.

Its price to sales (P/S) of 0.23 times means investors are paying less for the company’s sales compared with its peers like Forte Oil and Mobil with P/S of 1.35 and 0.68, respectively.