• Targets N100bn From Non-Core Assets Sale
• Divestments Reduce Net Debt by N125bn
The trading floor of the Nigerian Stock Exchange (NSE) was abuzz Tuesday morning, with many expressing surprises, as energy giant- Oando Plc, not only presented its audited figures for the year significantly earlier than in recent years, even where the directors did not recommend dividend payment at the end of the year ended December 31, 2016. The group’s 2015 result, according to INVESTDATA RESEARCH, was released to the exchange on July 4, earlier than the October 23 release date for the 2014 figures.
Oando Plc posted a 2016 profit after tax of N3.494bn, improving by an equally significant 107% from a loss of N49.689bn in the corresponding period of 2015.
According to the group’s figures for continuing operations for the year, Oando Plc earned N455.746bn in revenue, up by N252.315bn or 124.029% from N203.431bn in 2015. The revenue growth was however wiped off by a higher percentage growth in cost of sales for the period, which gulped N426.933bn, up by N270.161bn or 172.32% from the previous year’s N156.772bn.
More important however, is the fact that cost of sales as percentage of the year’s revenue for the period rose to 93.47% from 77.06% in 2015, indicating the necessity for the management to work on the need to drive down cost for the good of shareholders that have in recent years not been rewarded by way of dividend.
Meanwhile, gross profit for the year therefore dropped to N28.812bn from N46.659bn, representing a decline by about N17.847bn or 38.24%.
The situation was however helped by a N39.268bn or 117.16% rise in ‘other operating income’ to N72.782bn as against the N33.514bn reported for 2015; while administrative expenses almost doubled from N69.77bn in 2015 to N109.252bn; resulting to operating loss of N7.657bn from the previous profit of N10.403bn.
Financing cost rose to N58.313bn from N55.083bn; finance income improved slightly to N7.256bn from N6.444bn, following which net finance cost stood at N51.056bn from N48.638bn.
Share of loss of associates jumped to N4.661bn from N878.6m; resulting in loss before income tax from continuing operations of N63.375bn from N39.113bn in 2015.
The company obtained an income tax credit of N37.569bn, up from N4.192bn in 2015; bringing loss for the year from continuing operations to N25.806bn, down from N34.92bn in prior year.
A profit after tax for the year from discontinued operations of N29.3bn, as against a loss of N14.769bn turned the group’s numbers to green, resulting in profit for the year of N3.494bn, compared to the previous N49.689bn.
While Earnings Per Share from discontinuing operations stood at 241 kobo, up from a loss of 128 kobo in 2015; Loss per share from continuing for the period dropped from 294 kobo in 2015 to 215 kobo, resulting in a positive of 26 kobo, as against the loss of 422 kobo in 2015.
Total asset and liabilities fell to N208.279bn from N289.815bn in 2015.
At a time many companies in Nigeria reported the impact of the foreign exchange fluctuations in Nigeria on their business for the year, Oando Plc seemed silent, especially given that its business is not only capital intensive, but also significant across the US$ denominated energy/oil and gas value-chain.
Ernst & Young, the company’s external auditors however drew attention of shareholders to some material uncertainty related to going concern basis in the form particularly the comprehensive loss for the year of N33.9bn, an improvement over the previous N56.6bn.
“As at that date, its current asset exceeded current liabilities by N14.6bn (2015: N32.8bn net current liability). The group reported a comprehensive income of N112.4bn for the year ended 31 December 2016 (2015: loss N37.8bn) and as at that date, its current liability exceeded current assets by N263.8bn (2015: N260.4bn).”
These conditions, along with other matters, the auditors note, “indicate that a material uncertainty exists that may cast significant doubt on the company (and group’s) ability to continue as a going concern. Our opinion is not modified in respect of this matter.”
The group’s management however assured that key strategic initiatives such as restructuring of the Reserve Based Loan and Corporate Loan Facilities at Oando Energy Resources to ensure they are default free and fully compliant with credit agreements; achieve a tenor extension of up to two years, and reduce debt service requirements in the near term, have been designed to return to profitability, improve working capital and cash flows.
“The net effect of these two initiatives will be to reclassify up to N117 billion of net current liabilities into long-term liabilities thus creating a substantial remedy to the negative working capital position,” it noted.
Plans to implement this initiative started last year and is billed for completion between May 2017 and June.
The group also hopes to refinance an approximate N9 billion credit facility provided by one of the bilateral lenders and the promissory note consequent upon acquisition of the Conoco Philips companies with a view to extending the tenor of the facilities by at least the years, thus reclassifying the facility as longer term liabilities.
There is also a plan to sell the company’s shares “in Oando Energy Resources and other non-core assets to raise up to N100 billion over the next two years of which N50 billion is anticipated in 2017, in order to fund working capital and pay down debt across the Group, especially with respect to the N88 billion Medium Term Loan.
“One of the key initiatives discussed above which involves the raising of N50 billion in 2017 will improve the profitability of the group through interest savings arising from repayment of borrowings.”
Commenting on the result in a statement on Tuesday morning, Wale Tinubu, Oando Plc’s Group Chief Executive noted the difficult operating environment that 2016, when Nigeria not only plunged into a recession, the first in over two decades, with the attendant “liquidity constraints, devaluation of the naira and a slump in oil earnings due to low oil prices intensified by the insurgency in the Niger Delta.
“We were proactive in the timely execution of our restructuring programme of Growth in our upstream division; Deleverage, through divestments resulting in a net debt reduction of N125bn; and Profitability by focusing on dollar denominated earnings. In the, upstream we witnessed a decline in production but an increase in our 2P Reserves from 445mmboe in 2015 to 469mmboe.
“We are hopeful that the FGN will establish a long term resolution to the conflict in the Niger Delta which will positively impact the oil and gas industry, consequently ramping up our daily production.
“In the Midstream we concluded the partial divestment of Oando Gas and Power (OGP) to Helios Investment Partners to further expand our gas footprint, whilst in the Downstream our trading business continued to make in-roads in crude lifting.”
As the company enters into a new phase in its business evolution, Tinubu expressed optimism about 2017, while looking “forward to even more successes having braved the challenges of 2016.”