Total Nigeria’s Bottom Line Takes a Hit


Total Nigeria’s profit for 2017 suffered a slump as its reliance on bank overdrafts took a toll on its bottom line. Goddy Egene reports

Total Nigeria Plc recently announced its audited financial results for the year ended December 2017, which showed a decline in profit after tax (PAT). However, in spite of the fall in bottom-line, shareholders are to receive the same amount of dividend paid for 2016 financial year, which is N17.00 per share.

Although the high dividend payment appears to be in line with the company’s dividend policy, it is believed that the petroleum marketing firm needs to work hard and rely less on bank overdrafts so as to improve on its performance in this current year in order to sustain the dividend payout.

Financial Performance
Total Nigeria Plc recorded a turnover of N288.1 billion, down marginally from N291 billion in 2016. Cost of sale rose from N241.9 billion to N258.8 billion. Other income jumped from N1.449 billion to N3.936 billion, while sell and distribution expenses rose from N15.848 billion to N18.244 billion. Similarly, finance income soared from N273 million in 2016 to N2.719 billion in 2017, while finance cost grew from N851 million to N3.063 billion due to a spike in charges on bank overdraft. Total obtained overdraft of N9.575 billion in 2017, a jump of 238 per cent from N2.825 billion in 2016.

Profit before tax fell 42 per cent from N20.353 billion to N11.795 billion. Despite a reduction in tax from N5.55 billion in 2016 to N3.756 billion in 2017, profit after tax closed 46 per cent lower at N8.019 billion, from N14.794 billion in 2016.
In all, Total Nigeria ended 2017 with a gross profit margin of 10.17, down from 16.88 per cent and net profit margin of 2.78 per cent compared with 5.09 per cent in 2016.

Company explains performance
The Chairman of Total Nigeria Stanislas Mittelmen blamed the poor bottom-line on the economic recession in the country and its consequent contraction of the downstream market; the scarcity of PMS due to high landing cost compared to the template; foreign exchange scarcity hindering the importation AGO & ATK and high financial costs due to increase in bank lending interest rates and reduction of their credit terms for PMS purchases.

He said: “In 2017, the price of PLATT was high making importation of PMS difficult as the landing cost was higher than pump price. The capacity of oil traders to import products was greatly diminished. In most of 2017, NNPC assumed the role of sole importer of PMS. This led to supply challenges and of course PMS shortages.

Notwithstanding pump price remained N145 per litre throughout 2017. Since June 2016 it has not been possible to directly buy dollars from the upstream sector and this has made doing business difficult for us as we have challenges procuring dollars for the importation of AGO and ATK. In September, there was an explosion at the NNPC Apapa jetty which made it impossible for Major marketers to receive products in Apapa for the rest of the year. All these factors have greatly affected our ability to do business.”

However, while the company was having challenges in PMS sales, it increased its market share in lubricants from 25.7 per cent in 2016 to 28.1 per cent in 2017.
“In addition, we increased our lubricants production capacity by 33 per cent with the addition of two high speed filling machines in Koko, Delta State and Lagos, as well as carried out solarisation of the Lagos blending plant and developed power purchase offers for industrial use,” he said.

Looking ahead, Mittelmen said a stable and conducive business environment, they envisage that 2018 will provide Total Nigeria with opportunities for growth, investment and consolidation.
“We intend to take advantage of the projected growth the Nigerian economy will offer and deliver value to you our shareholders and other stakeholders,” he said.

Analysts’ projections
Although the chairman of Total Nigeria is optimistic about the future performance of the company, Vetiva Capital Limited, a Lagos based investment banking firm, has said earnings will moderate.
According to analysts at the Vetiva Research, they expect to see normalisations across a number of line items in Total Nigeria’s 2018 full year’s (FY’18 ) results.

“Selling and distribution came in quite low given historical trend, current level of sales as well as inflationary pressures during the year. As a percentage of sales, the expense line printed at 0.9 per cent for full year 2017(FY’17) versus the average 2.0 per cent in the last five years. We have taken a conservative stance in estimating the expense line going forward and thus forecast FY’18 at 1.7 per cent,” they said.

They also explained that other income of N3.9 billion consists of some items which they do not see as recurring items. The in items include: reversal and re-measurement of FX forward contract (N1.6 billion), FX gains (N1.0 billion).

“After adjusting for non-recurring income from FX transactions and gains from asset disposal, we forecast other income of N2.1 billion for FY’18. Also, we do not expect the N1.9 billion from “forex differential on Petroleum Subsidy Fund (PSF)” recognised in Q3’17 to re-occur, hence we exclude this from our forecast going forward. With improving operating cash flow, we expect the oil marketer to be less dependent on overdraft financing over the course of the year. As such, we revise our FY’18 net finance cost to N2.3 billion (previous: N2.6 billion). After updating our model, we revise our FY’18 PAT lower to N3.9 billion (previous: N4.7 billion). Largely buoyed by the strong improvement in cash position however, we have revised our Target Price to N258.67 (Previous: N249.67).

The analysts said the full liberations remains biggest upside to Total Nigeria’s earnings, stressing that the maintained their erstwhile outlook on the company.
The company remains well positioned to maintain its long-standing dominance in the Nigeria downstream petroleum industry given its fuel distribution network even as it continues to expand its asset base (FY’17 capex: N7.2 billion, FY’16: N5.4 billion). Notwithstanding, policy catalyst particularly in form of full liberalisation of the sector is required to extract optimal value from these assets. With oil prices expected to remain strong in 2018, we expect PMS landing cost to remain higher than the regulated pump price band of N135 – N145/litre making it uneconomical for independent markets to import,” they said.

However, they noted that they did not foresee deregulation in the sector in the near term even as the 2019 general elections draw nearer.
“As such, we expect the current status quo in the sector to be maintained – NNPC to remain the sole importer of PMS, rationing the supply to marketers at regulated thin margins. With fuel shortages slightly worse than anticipated thus far in 2018, we cut our FY’18 revenue to N300 billion (previous: N313 billion).