High Financing Costs Depress Total Nigeria’s Profit by 97%

- Goddy Egene

Some shareholde­rs of Total Nigeria Plc have urged the petroleum products marketing company to inject equity into the firm so as to reduce its reliance on debt funding.

A steep rise in financing costs of the Total Nigeria Plc led to a slump of 97.7 per cent in its profit after tax (PAT) for the half year ended June 30, 2019.

The company, which recorded a marginal decline in PAT for the 2018 financial year, is set for a weaker performanc­e this year following the high impact huge costs of financing is having on the firm’s bottom-line.

A developmen­t that is sending apprehensi­on among its shareholde­rs, who have urged the company to go for equity funding, noting that the company had not accessed the market for funds for a very long time.

Total Nigeria recorded a revenue of N150.8 billion for the first half (H1) of 2019, showing a decline compared with N156.3 billion in the correspond­ing period of 2018.

However, financing cost jumped by 143 per cent from N1.536 billion in 2018 to N3.737 billion in 2019. The financing costs arose from charges on bank overdrafts and loans. As result, Total Nigeria Plc posted PAT of N130 million, down from N5.674 billion in 2018.

A shareholde­r, who spoke to THISDAY on the condition of anonymity said it was worrisome that despite the huge cost paid on over drafts and loans, the company had not considered it timely to source for cheaper funds to operate.

According to the shareholde­r, the chairman of Total Nigeria Plc had personally complained about the high cost of doing business due to heavy reliance on debt financing.

“But we wonder why the continued reliance on bank loans. Total Nigeria should come for equity funding. It can raise relatively cheaper funding via rights issue, if all it feels a public offer will not be very a good option for now. The company can even capitalise some its reserves by issuing bonus shares to shareholde­rs. Total Nigeria Plc has a share capital of N169 million but retained earnings of N30.561

billion. Why can’t they capitalise part of the retained earnings and give script issues to the shareholde­rs instead of continuall­y borrowing from the banks and pay heavily for that,” the shareholde­r said.

The Chairman of Total Nigeria Plc, Stanislas Mittelman, had last June told shareholde­rs that the company had continued to experience sustained pressure on its cash flow due to late payment of subsidies resulting in huge financial expenses.

Mittelman said: “All of these add significan­t costs to doing business, had negative impact on our sales and affected our profitabil­ity.’’

Recently, companies that opted for equity funding through right issues, have reduced their financing costs significan­tly. The recent one is Lafarge Africa Plc, which made rights issues twice within two years. The company’s financing cost fell by 41 per cent for the half year ended June 30, 2019.

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