TotalEnergies Marketing Nigeria Plc opened the 2025 fiscal year with a disappointing first quarter performance, as the company struggled with a sharp decline in topline revenue, escalating finance costs, and newly imposed tax headwinds. Despite strong brand equity and operational footprint, the downstream giant posted a net loss of NGN0.12bn in Q1:2025, a sharp reversal from the NGN11.50bn profit recorded in the same period last year.

Revenue declined by 17.87% YoY to NGN221.62bn from NGN269.84bn in Q1:2024. This was largely driven by weaker domestic product offtake, tighter regulatory control on ex-depot pricing, and subdued trading margins in the PMS and AGO segments. In tandem, cost of sales decreased 16.03% to NGN197.11bn, reflecting softer import pricing and reduced inventory volumes. However, the pace of topline decline outstripped cost improvements, leading to a 30.24% contraction in gross profit to NGN24.51bn, and a 195bps erosion in gross margin to 11.06%.

On the expense side, operating costs continued to climb, notably administrative expenses, which rose by 22.66% to NGN17.71bn. The increase was led by a 35.48% surge in staff-related expenses, a 30.66% jump in technical fees, of which was likely linked to affiliate network services, elevated IT infrastructure and cybersecurity investments.

These pressures were only partially offset by a 39.06% reduction in selling and distribution expenses, which fell to NGN2.20bn, benefitting from logistics restructuring and improved haulage contract terms.

Other income rose by a healthy 47.66% to NGN2.39bn, aided by improved foreign exchange gains and miscellaneous recoveries across Total’s retail network and depot services. However, the uplift was not enough to counterbalance the deteriorating operating leverage. Operating profit dropped 62.69% to NGN6.96bn from NGN18.66bn in Q1:2024, reducing the operating margin from 6.93% to 3.14%.

Perhaps most concerning was the significant increase in finance costs, which soared by 216.33% to NGN5.84bn. This was driven by sustained dependence on short-term bank overdrafts at elevated interest rates and interest charges from lease obligations under IFRS 16. With limited foreign currency debt buffers and tight liquidity in the Nigerian financial system, this exposure remains a persistent risk.

In the taxation line, the company booked a NGN1.11bn minimum tax charge, reflecting changes under the Finance Act 2021 and a modest NGN0.13bn in company income tax, partially offset by deferred tax credits. This brought total tax expenses to NGN1.24bn compared to a tax reversal of NGN5.34bn in Q1:2024. As a result, profit before tax of NGN1.12bn was effectively wiped out, culminating in a bottom-line loss.

From a balance sheet perspective, the company remains adequately capitalized, though early signs of strain are emerging, particularly in liquidity and working capital dynamics. Shareholders’ equity rose 3.87% YoY to NGN61.38bn, supported by retained earnings and modest revaluation reserves. However, total assets dipped 5.40% year-to-date to NGN445.82bn, as inventory balances fell by NGN36.99bn (-24.36%), likely reflecting conservative restocking amid cost pressures. Receivables rose modestly to NGN164.29bn, while total liabilities stood at NGN384.44bn.

Cash flow performance deteriorated significantly. Operating cash flow fell 76.11% YoY to NGN6.08bn, primarily due to reduced profit generation and a buildup in trade receivables. Capital expenditure was contained at NGN1.72bn, but financing outflows reached NGN7.50bn, leading to a swing in net cash position from NGN9.08bn in Q1:2024 to a negative NGN11.67bn in Q1:2025.

In terms of leverage, net debt-to-equity moved from –15.37% (net cash) in FY:2024 to +19.14% in Q1:2025, highlighting a notable decline in cash headroom and increased reliance on short-term liabilities to finance operations. While not alarming given the firm’s strong brand and supplier relationships, these dynamic warrants close monitoring if operating cash flows do not rebound in Q2.

OUTLOOK

The company faces a cautious near-term outlook amid margin compression from regulated pump prices, elevated finance costs, and weaker operating cash flows. While its strong brand and wide retail network offer strategic advantages, earnings recovery will hinge on improved working capital efficiency, tighter cost controls, and a rebound in fuel demand or pricing deregulation. Management’s ability to stabilize liquidity and restore profitability in H2:2025 will be critical to restoring investor confidence. However, we maintain a BUY recommendation on Total.

We have a cautious near-term outlook amid margin compression from regulated pump prices, elevated finance costs, and weaker operating cash flows. While its strong brand and wide retail network offer strategic advantages, earnings recovery will hinge on improved working capital efficiency, tighter cost controls, and a rebound in fuel demand or pricing deregulation. Management s ability to stabilize liquidity and restore profitability in H2:2025 will be critical to restoring investor confidence. However, we maintain a BUY recommendation on Total.

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