Total Nigeria: Sustaining cost-cutting to save profit
Total Nigeria Plc sustained heavy cost slashing that it began in the final quarter of last year into the first quarter ended March 31, 2021 operations. This is the company’s move to save profit in the face of a continuing fall in revenue.
The oil marketing company is losing sales revenue for the third straight year but it isn’t letting profit go down again this year.
Against a drop in sales revenue in the first quarter, the company’s management lifted the bottom line from a loss of N163 million in the same period last year to a profit of almost N3 billion.
Cost-cutting took place all the way from the cost of sales to finance expenses, which more than compensated for the loss of revenue in the quarter. Input cost dropped ahead of sales, which enabled the company to achieve strong growth in gross profit.
The company generated sales revenue of N66.7 billion in the first quarter, which a decline of 5 per cent year-on-year.
That still represents a far better record than the 30 percent drop in turnover in 2020. Petroleum products – the main revenue line of the company, accounted exclusively for the drop in turnover.
Earnings from petroleum products went down by 11 per cent year-on-year to N50.7 billion in the first quarter. This was moderated by an increase of 23 per cent in revenue from lubricants and others, which amounted to N16 billion for the first quarter.
Cost of sales dropped by 11.7 percent to N55 billion – more than twice the margin of drop in sales revenue over the same period. This saved substantial cost for the company – being a reduction of over N7 billion, which is twice the drop of N3.5 billion in turnover.
The proportion of sales revenue claimed by the cost of sales declined from 89 percent to 82.7 percent over the period. The cost-saving powered gross profit, which rose by over 48 per cent to close at N11.5 billion for the quarter.
The high growth in gross profit was further reinforced by other favourable developments in operating numbers. Other income grew by 77.5 percent to N870 million and selling and distribution cost dropped by 24 per cent to N864 million.
Other expenses dropped to zero from over N50 million in the same period last year and impairment loss on trade receivables also dropped by 62 per cent to N26 million.
However administrative expenses failed to follow the downward move-in costs and grew by 15 percent to almost N7 billion over the review period. Nevertheless, the company achieved a general cost reduction that lifted operating profit nearly five times year-on-year to N4.5 billion.
The elevated performance was still boosted by a major drop in finance expenses. There was a drop of over 84 percent in finance expenses year-on-year in the first quarter to stand at N177 million.
Net finance costs dropped from over N1 billion to N140 million over the review period. The drop in finance expenses is despite an increase in the company’s borrowings from N32.6 billion at the end of 2020 to N34.8 billion at the end of March 2021.
The company has retained the ability to bent costs lower than the continuing drop in revenue. This has provided the strength of for-profit performance for Total Nigeria since last year.
Total Nigeria closed the first quarter trading with an after-tax profit of about N3 billion, which is a big turnaround from a loss of N163 million in the first quarter of last year. This is already ahead of the closing profit figure of N2.1 billion the company posted at the end of the 2020 financial year.
It earned N8.75 per share in the first quarter against negative earnings of 48 kobo per share in the same period in 2020. The company closed the 2020 full year with earnings per share of N6.08 and gave it all out to shareholders in cash dividend.
