Total Nigeria is following an alternative route of cost cutting to build profit in the face of a sustaining drop in turnover. And it is cutting as much costs as it can with virtually every key expense line down in the first quarter.
The oil marketing company is losing sales revenue for the third year running after sales revenue plunged by 30 percent in 2020 to the lowest figure for the company since 2012. Sales revenue again went down by 5 percent year-on-year to about N67 billion in the first quarter of the 2021 financial year.
Cost cutting has been the management’s profit defensive strategy to compensate for dropping sales revenue since last year. Against the huge revenue loss in 2020, the company was able to defend profit through significant cost reductions. This has given it the highest net profit margin in many years.
As happened last year, Total isn’t letting profit to go down with turnover this year. Heavy cost slashing has been on since the final quarter of last year, which sustained into the first quarter of the 2021 operations.
The result is a big improvement in the ability to convert revenue into profit. Net profit margin is up at 4.5 percent in the first quarter from negative in the same period last year.
This is the company’s strategy to save profit in the face of a continuing drop in revenue and it is working for it so far. Against a drop in sales revenue in the first quarter, the company made a big turnaround from a loss of N163 million in the same period last year to a profit of almost N3 billion at the end of the first quarter.
This is the gain from cost cutting from cost of sales to finance expenses, which more than compensated for the loss of revenue. Except administrative expenses that failed to drop, cost cutting was applied all the way from input expenses to finance cost.
Input cost dropped ahead of sales, which enabled the company to extract a strong growth in gross profit from the drop in sales.
The company’s main source of revenue is petroleum products – which accounts exclusively for the drop in sales revenue in the first quarter. Revenue from petroleum products sales dropped by 11 percent year-on-year to about N51 billion.
Sale of lubricants is the secondary source of earnings for the company, which grew by 23 percent to N16 billion and […]
