Oando on Steady Recovery

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Goddy Egene writes that the N29 billion profit after tax recorded by Oando Plc for the 2018 financial indicates a steady recovery expected to lead to payment of dividend in no distant time

“We remain confident in our ability to deliver significant value to shareholders in the years ahead as well as resuming our dividend payments.”
The above were the words of the Group Chief Executive Officer, Oando Plc, Mr. Wale Tinubu while speaking on the prospects of the integrated energy firm to start the payment of dividend very soon, following improvement in the company’s fortunes.

Tinubu stated this after the company released its audited results for the year ended December 31, 2018, showing a growth of 46 per cent in profit after tax (PAT).
Oando Plc had a rough patch years back, recording losses and unable to pay dividend. However, the company has bounced back to profitability and recording steady recovery, thereby raising the hopes of shareholders of receiving dividend in the not too distant future.

Financial performance
Following the negative fallout from the plunge in oil prices in 2014, the company has successfully executed strategic initiatives that has enabled continued growth across all financial performance indices three years in a row. In 2018, Oando Plc posted a turnover of N679 billion, indicating a growth of 37 per cent from N497.4 billion in 2017. Cost of sales rose from N409 billion to N683.2 billion, bringing gross profit to N96.274 billion, up from N88.081 billion in 2017. The increase is primarily driven by higher revenue as a result of higher commodity prices and higher oil production.
The company reduced its administrative expenses to N70.457 billion from N72.558 billion. Net finance cost declined from N33.784 billion to N32.441 billion. PAT rose by 46 per cent from N19.8 billion to N28.8 billion in 2018. The PAT was buoyed by higher revenue as well as income tax credits.
The company has also reduced its debt and liabilities, decreasing 55 per cent from N473.3 billion in 2014 after the acquisitions of ConocoPhillips to N210.9 billion in 2018.

Analysts said the company’s 2018 results are further evidence that its management team is focused on maintaining a strong balance sheet, profitability, value creation and a business that is indeed here for good.
According to them, the third year of strong financial performance is evidence that the company is back to business as usual, thus rebuilding stakeholder confidence in the brand as a viable business to invest in.

Company explains performance
Speaking on the results, Tinubu said: “Our 2018 results demonstrate the solid foundation we have built across volatile commodity price cycles, and our ability to deliver profitability despite a challenging local operating environment. Over the last few years, we have developed a reliable platform for future growth through the execution of a corporate strategy designed to streamline our operations, reduce our debt and optimize our asset portfolio.”

Commenting on the significant reduction in borrowings, he said: “Our asset base is delivering strong free cash flows as evidenced by a 70 per cent reduction in our Upstream Borrowings since the closure of our landmark acquisition of ConocoPhillips’s Nigerian assets in 2014.”

Operational highlights
In addition to an impressive financial statement, the company recorded operational highlights. In the Upstream, Oando recorded a two per cent increase in proven oil reserves to 479.8 Million Barrels of Oil Equivalent million barrels of oil equivalent (mmboe) from 470.7mmboe while net revenues in 2018 increased to $407.0 million from $333.7 million in 2017.
According to the company, during the 12 months ended December 31, 2018, production was in line with prior year at 40,023boe/day, compared with 40,188boe/day in the same period of 2017. Oil production in particular increased by 10 per cent from 15,492bbls/day in 2017 to 16,967bbls/day in 2018.

“Working interest proven and probable (2P) reserves, as assessed by an independent reserves evaluator, stood at 479.8mmboe as at December 31, 2018 compared to 470.7mmboe in the comparative prior year period. This represents an increase in overall 2P reserves of two per cent year on year in line with the group’s reserve replacement ratio,” the company said.
Oando recorded capital expenditure of N38.0 billion in 2018 compared N17.1 billion in 2017.
In 2018, Oando Trading traded over 14 million barrels of crude oil under various contracts with the Nigerian National Petroleum Corporation (NNPC) as well as delivering 739,876 metric tonnes of refined products, acting as a key source of liquidity to the Oando Group. Oando Trading continues to solidify its relationships with leading international and local banks, maintaining a sizeable and well diversified structured Trade Finance facilities required to support future growth.

Looking ahead
According to the company, its upstream business will continue to pursue production growth initiatives through strategic alliances, whilst ensuring operational efficiency and fiscal prudence.

“Our trading business will continue to solidify its position in Nigeria and carry out growth initiatives, whilst exploring opportunities for expansion across Africa. The group as a whole remains focused on driving profitability via growth in our upstream business and achieving further reduction of borrowings to ensure value accretion to shareholders,” it said.
Oando streamlined its portfolio in 2016, by focusing on its dollar denominated businesses in the upstream and downstream trading sector to drive profitability and ensure value accretion to shareholders as a mechanism to navigate the crash in oil prices which negatively impacted all players in the oil and gas sector. Since the successful implementation of its corporate strategic initiatives the company has recorded its third consecutive year of profit.

Divestment from power and gas
Oando fully divested from gas and power business by selling its residual 25 per cent interest in Axxela Limited (formerly Oando Gas & Power Limited) to Helios Investment Partners. The leading private equity firm with a focus on investments in Africa had in 2016 had acquired the initial 75 per cent interest in Axxela for $115.8 million.
However, Oando Plc last week announced the divestment of the remaining 25 per cent for $41,500,000, thereby optimising value from a non-core business activity of the group.

According to the company, the net proceeds of the transaction will be applied in partially prepaying the group’s medium term loan. Tinubu said:”The completion of this divestment signifies another win for the company.We pioneered the development of Nigeria’s foremost natural gas distribution network which has subsequently grown to become the largest private sector gas distributor in Nigeria creating a lasting impact on both the sector and the Nigerian economy.

The divestment further reinforces Oando’s ability to create value that can be monetised and the company’s status as the indigenous partner of choice for international companies looking to invest in Nigeria. This transaction favorably positions us to significantly reduce our debt profile and remain focused on growth through our dollar denominated businesses.We will continue to maintain significant presence in the Midstream as well as grow our gas aspirations via our upstream gas assets in our NAOC Joint Venture wherein we have four gas projects within the NNPC’s Seven Critical Gas
Development Projects (CGDPs), which are responsible for almost 50 per cent of the 42 TCF that will be delivered by the seven CGDPs by 2020.”

Also commenting, CEO, Axxela Limited, Bolaji Osunsanya said: “As we position to become the preferred and fast-growing gas and power portfolio across sub-Saharan Africa, we pay homage to our origins, legacy, and storied history as an Oando portfolio company. As we commence a new journey, our audacious growth initiatives across Nigeria and the sub-region will leverage our industry expertise, experience, and longevity; while our affiliation as a full-fledged Helios company will improve our access to capital. The continued growth, robustness, and stability of our business enterprise, enables Axxela provide required efficient and environmentally-friendly energy solutions for industrial and commercial clients, leading to positive socio-economic impact in our markets of operation.”