Oando Plc, Nigeria’s foremost indigenous integrated energy services company has been in the news for negative reasons in the recent time.
Many analysts have labelled the company performance with different names in the last three weeks after it posted the biggest loss in the history of listed equities in Nigerian Stock Exchange.
New Mail Nigeria research team has taken time to conduct a thorough financial analysis on the said results, as well as the recently released audited third quarter 2015 report. We were able to unravel some of the real problems of the company and found out some facts that would be of interest to regulators and investing public.
We were also adequately informed from the analysis carried out on current nine months report that the leadership of the company has taken some financial decisions (at the detriment of shareholders) in the ongoing financial year in order to appear as if the management is improving on the company poor performance.
Audited Year 2014
It is no longer news that Oando Plc recorded 131 percent increase in net loss to N183.9 billion (about $926 billion) in the financial year ended 2014. This loss stand as the largest loss by any company listed on the Nigerian Stock Exchange with an exception of distressed banks.
The Nigerian Stock Exchange, in swift reaction to the result, invited Oando’s Audit Committee as well as its external auditors. “Should The Exchange’s continuing review reveal that Oando committed infractions, The Exchange will map out appropriate sanctions pursuant to its Rules”, a statement from the NSE revealed.
The Exchange said it has reported the situation to the Securities and Exchange Commission and, will involve other stakeholders, as appropriate.
“The Nigerian Stock Exchange is reviewing the situation regarding the delayed filings of the Audited Financial Statements of Oando Plc for the year ended 31 December 2014 and its Q1 and H1 delayed filings.
“The Exchange is greatly concerned about the delayed filings and the significant losses which were posted for the 2014 fiscal year and the first three quarters of 2015”, the statement from the Exchange explained
Oando’s 2014 financial result also confirmed analysts’ prediction earlier this year that the company might not be able to record profit by the end of the financial year 2014.
In the last five financial years, the company has being struggled to stay afloat. It does not however come as a surprise that the company’s financial state degenerated into a loss in 2014.
A breakdown of the figures presented by the company to the Nigerian Stock Exchange (NSE) showed that majority of its financial ratios such as Return on Assets (RoA), Profit Margin (PM), Current ratio (CR) and Debt to Equity ratio nose-dived compared to the previous seasons.
Gross Earnings dropped from N650.6 billion in 2012 to N424.7 billion in 2014. This represents 35 percent drop despite recording a 500 percent increase in total production from 1.5 million barrel of oil equivalent in 2013 to 9.1 million in 2014. Net Profit dropped from N1.4 billion in 2013 to a loss of N183.9 billion in 2014.
Shareholders equity or shareholders’ fund decreased to N45.5 billion in 2014 representing 72 percent drop from N162.4 billion in 2013. It is obvious shareholders are gradually losing their stake in the company.
The company’s short term debt of N311 billion in 2014 exceeds Shareholders’ Fund by 583 percent, leaving a deficit gap of N265.4 billion.
Technically, shareholders no longer have any stake in the company as equity has been eroded by huge debt. Unexpectedly, management could not introduce cost management measures to stay afloat; instead, Oando’s administrative cost has kept on rising.
Administrative expenses rose by 557 percent from N41.4 billion in 2013 to N271.9 billion in 2014. Administrative expenses in 2014 represents 64 percent of the company’s total revenue generated.
We also discovered that poor management of financial resources and investment decisions on the side of management impacted negatively on the company’s performance.
Another factor that contributed to the woes of the company is the acquisition of a subsidiary which costs the company N145.63 billion. It would be recalled that in 2014, Oando got the approval for its bid of $1.65 billion acquisition of ConocoPhillips’ assets in Nigeria.
Q3 2015 Reports
It is obvious from the company nine months results that the oil and gas company will not be able to post better result at the end of ongoing financial year if the awaiting last quarter result of the company follow previous quarter’s pattern.
The nine month unaudited results of the company for the period ended September 2015 revealed that the company’s management has not improved on its top and bottom line figure over the 2014 audited result.
The interim report indicated a digit drop of 5.5 percent in gross earnings (revenue), a similar scenario of seven percent turnover decrease in last audited report, from N457 billion in 2013 to N425.7 billion in 2014.
According to its results, Oando spent more to achieved a lower revenue compare to previous year. Cost of sales in Q3 2015 increased by 47 percent from N37.2 billion in 2014 to N54.7 billion, despite decline in revenue.
Consequently, the company had a gross profit decrease from N64 billion in Q3 2014 to N41.1 billion.
As at nine month, Oando has only achieved 22.5 percent of N425.7 billion turnover posted for last audited report. Similarly, Q3 2015 gross profits of N41.1 billion represent 59 percent of N60.2 billion in the audited report of 2014.
Breakdown of the unaudited Q3 reports shows that nine months loss per share (LPS) stood at -418 kobo, -962 lower than -1380 kobo posted in the audited report of 2014.
Administrative expense stood at N45.8 billion, N4.8 billion higher than gross profit of N41 billion. Based on its spending pattern, debt burden, poor bottom-line and rising cost of sales, it is not likely that the company will return to profitability in the nearest future.
Q3 2015 Balance Sheet
It was revealed form our analysis that the management has embarked on disposal of its assets to offset the burden loan. Oando’s current assets has been reduced by 64 percent to N70 billion from N196 billion as at audited report 2014. This means that over N125 billion of its short term asset has been disposed.
Property and equipment was also reduced by 20 percent. By implication, the management has sold over N64 billion worth of property from its fixed assets, all to the detriment of its shareholders.
Consequently, the company’s current liabilities has dropped to N290 billion from N518 billion in audited 2014. The management has been able to raise N201 billion to pay debts from the sales of assets as short term borrowing dropped from N311 billion as at December 2014 to N101 billion in Q3 2015.
Shareholders’ fund was boosted by increase in share premium to move from N46 billion in audited 2014 to N55 billion in the revealed period.
Meanwhile, up till Q3 2015, the company still grappled under a negative working capital. Oando current assets stood at N70 billion against current liabilities of N290 billion.
Expectedly, Adewale Tinubu, Group Chief Executive of Oando Plc, has blamed the company’s woe son falling crude oil prices and the weakness on the naira.
Tinubu said his company was brave enough to let out its financials with the needed integrity, a virtue he believes will help the company recover after one more quarter of loss. He further stated that what his company did was to ensure financial integrity, while preparing for the future.
“We see it as a means of ensuring that the integrity in our finance is kept at ultimate priority, we seek towards creating a platform to deal with the challenging future, which we see would occur in the next couple of months as a result of weak oil price and dwindling exchange rate and an increase in interest rate,” he noted.
However, Tinubu assured stakeholders that Oando would come back to profitability after one more quarter of loss.
Yes, many analysts agree with Tinubu, but then, what appears to be bothering investors is will the wait be ultimately worthwhile?