Oando Posts N19.8bn PAT; Impressive Results

Five quarters in a row, Oando Plc has sustained its trend of posting positive results. The company has once again boosted shareholders confidence by publishing N19.8bn profit after tax in its twelve months ended December 31, 2017 financial results.

This is coming on the ills of the challenging environment that ensued after the company’s 2014 Full Year loss including a global oil glut, forex volatility, recession and pipeline vandalism, Oando was able to swiftly develop and execute an alternative strategy to ensure it was able to successfully navigate these headwinds.

Oando’s management team have made concerted efforts to return the business to profitability – reassuring shareholders and investors alike that their investment in the company was a good one. Some notable actions the company has taken include significant debt and liabilities reduction and a focus on its upstream and dollar earning trading businesses. In 2016 the company was able to get 11 banks led by Access Bank to give them a N108bn 5 year MTL. A focus on medium term and naira loans which is more manageable and not affected by forex volatility.

Many would have thought that the company’s challenges in 2017; Securities and Exchange Commission’s (SEC) investigation into the company, technical suspension of the company’s shares on the Nigerian Stock Exchange (NSE), and the full suspension of free trading of its shares on the Johannesburg Stock Exchange (JSE) in 2017 would negatively impact operations and in turn the financials of the company but this hasn’t been the case. The company once again defied the odds to post profits 405% higher than the preceding year.

The company’s latest results along with past corporate actions show real progress and are proof that the company is on the right track for value creation for all stakeholders.

In its FYE 2017 results, Oando achieved a turnover 13% lower than the comparative period in 2016, N497.6 billion versus N569.2 billion. Despite this slight decrease in turnover the company was able to achieve positives on all other indices. The company’s gross profit increased by 81% to N88.1 billion compared to N48.6 billion in FYE 2016; its net debt reduced to N217.1 billion from N230.6 in the comparative period of 2016; and a profit-after-tax of N19.8 billion, 405% increase from N3.9 billion in same period of 2016.

According to the Group Chief Executive, Wale Tinubu; “This comes in the wake of oil prices on an upward trajectory, an improved operating environment, the exit of a 13 month long recession and most importantly the continued strengthening of our business model through the effective implementation of our strategic initiatives of Growth through our dollar earning upstream portfolio; Deleverage through asset divestments and the expansion of our oil export trading business.”

The first half of 2017 was challenging for the country as a result of the economic recession, Forcados terminal shut-in which reduced oil production, volatility in oil prices and increased inflation rate. However, in the second half of the year, the economy improved. Nigeria recorded a real GDP growth of 1.90% YoY in Q4 2017, up by 50bps from 1.40% recorded in Q3 2017; the country’s foreign reserves grew by 19.4% quarter-on-quarter from $32.5bn recorded at the end of Q3 2017 to $38.8bn recorded at the end of Q4 2017; inflation moderated to 15.37% YoY in Dec. 2017, representing a 53bps decline from the preceding month.

The oil and gas sector which is still the mainstay of the country saw the nation’s oil production increase to an average of 1.9m bpd in Q4 2017 from 1.8m bpd recorded in Q4 2016; whilst the sector grew by 8.4% year-on-year and the non-oil sector grew by 1.5% – driven largely by activities in the Agriculture Sector (specifically crops), which grew by a decent 4.2% YoY in real terms.

Against this background Total Nigeria PLC recorded a profit-after tax of N8.01 billion from N14.79 billion declared in the comparative period of 2016 while Exxon Mobil recorded a profit of $19.7 billion compared with $7.8 billion in same period of 2016; Seplat recorded a profit-after-tax of N81.11 billion compared to a loss of N45.38 billion in FYE 2016. According to Seplat’s management statement, its Q4 results to a large extent, reflected positives from undisrupted exports via the Trans-Forcados System (TFS).

Speaking further on Oando’s FYE 2017 financials, Wale Tinubu said; “The business recorded a year-end profit of N19.8 billion; a culmination of 4 consecutive quarters of positive results, validating our promise to shareholders of returning to and maintaining profitability.”

 

Despite the challenges the company experienced in 2017, Oando recorded some operational highlights. In the upstream sector, Oando recorded an average production of 40,188 boe/day in the 12 months ended December 31, 2017 compared to 43,503 boe/day in the comparative period of 2016. This was primarily due to significant reductions in gas production and delivery caused by the rupturing of Gas Transmission System (GTS-4) gas line and pipeline and terminal constraints at its OMLs 60 to 63.

The upstream business recorded a net profit of N26.33 billion ($86.1 million) compared with N91.83million ($0.3 million) in the comparative period of 2016. This increase in profitability was primarily due to improved revenue between the periods, and increase in gains on financial instruments which were offset by lower tax recoveries.

In the midstream, Oando’s affiliate, Axxela, recorded an 11% increase in natural gas deliveries in 2017. This achievement was in spite of restricted gas supply in H1 2017 due to the sabotage of upstream gas supply facilities by militants. The construction of Phase IV of the pipeline network in the Greater Lagos Industrial Area and the Central Horizon Expansion Pipeline in Port Harcourt were successfully completed. These projects expanded the firm’s distribution infrastructure and enabled it reach a wider demand area for delivery of gas, consequently increasing its customer base to 175 customers. The Tincan HDD project was successfully concluded; a project which involved restoring leakages at a pipeline that has 2 river crossings so as to reconnect existing customers to the network.

Axxela continued to maintain its Quality Management System Certification and recertified its ISO quality accreditation to the most up to date standards – ISO 9001:2015 (Quality Management Standard) and ISO 14001:2015 (Environmental Standard). These standards were successfully merged with OHSAS 18001 (Occupational Health and Safety) creating an Integrated Management System. The business achieved 3.1 million man-hours without a Lost Time Incident (LTI), a testament to its commitment to safe operational practices and continued alignment to global standards.

In the downstream, Oando’s trading subsidiary sustained growth in its Crude Oil business resulting in a 9% increase in traded volumes. The company continues to solidify its relationships via access to over $700 million of immediately available Structured Trade Finance facilities.

2018 is already looking good for the company. Oando’s positive activities, coupled with the rise in crude oil prices to just over $70 these past months cannot be ignored. Recently, the SEC gave the directive to lift the technical suspension placed on the company’s shares after 175 days. In barley three hours of trading after the technical suspension was lifted, 178 million Oando shares were on bid with only 5.5 million available for sale. The company’s share price hit the NSE daily price ceiling of 10% by 10.45 a.m. on its first day of trade and was of the top gainers on the NSE index. As at Friday, 27 April 2018 when the company released its FYE 2017 results its share price had reached N9.15, a 65% increase in 21 days.

In the same stead of positive news the Nigerian National Petroleum Corporation (NNPC) announced that a consortium consisting of Oando PLC and OilServe Limited have been awarded the Engineering, Procurement, Construction (EPC) mandate for the construction of a gas pipelines stretching from Ajaokuta to Abuja as part of the Ajaokuta-Kaduna-Kano Pipeline. The pipeline is a section of the Trans-Nigerian Gas Pipeline under the gas infrastructure blueprint designed to enable the industrialisation of the Eastern and Northern parts of Nigeria and also enable connectivity between the East, West and North, which is currently non-existent.

The tide has definitely turned for the company. With the commitment of its current management team, it’s continued agility and perseverance, oil prices continuing on an upward trend and the local operating environment remaining positive, the company is assured of even greater successes.

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