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Oando: Profit capacity broken by sustaining revenue fall

Oando’s cost-income structure has faltered with a sustaining decline in sales revenue and a continuing rise in costs. Turnover went down by 5.5% year-on-year at the end of September but cost of sales rose by 47%, which led to a 36% fall in gross profit. This has been the trend for the third year running. In 2013, the company lost 30.8% of sales revenue and in 2014, a further loss of 5.6% occurred. Profit drops happened for the second year in 2013 and huge losses have followed for the second year in 2015.

The collapse of crude oil price after the company’s acquisition of the $1.5 billion ConocoPhilips’ Nigerian business means a lot of provisions for losses in asset values will have to be made in the accounts. This year, an impairment charge on assets to the tune of N23.6 billion has appeared and that claimed more than one-half of gross profit. A rise of 35.6% in net finance cost to N38.83 billion at the end of the third quarter blew up an operating loss of N13.18 billion into a pre-tax loss of over N52 billion.

The company’s balance sheet shows that borrowings remain large despite some reductions. It has long-term debts of nearly N141 billion and short-term borrowings amounted to over N101 billion at the end of the third quarter. It is under cash flow pressure and needs to raise new money even for loan repayment. Despite a new issue of shares, the company ended third quarter trading with a net cash utilisation of over N77 billion for financing activities.

Shareholders appear to be getting the opposite of what they expected from Oando and consequently the company is equally one of the leading share price declines so far this year. At the close of business last Friday, Oando closed over 63% down from its January opening price.

In place of the big profit expected, big losses have occurred. Between the final quarter of last year and the third quarter of this year, Oando has built a total loss of about N231 billion. With that, retained earnings of close to N34 billion at the beginning of 2014 was wiped off and an accumulated loss of over N201 billion appeared at the end of the third quarter. Net assets have dropped to one-third of the opening figure in 2014 and this is net of the 32.5% increase in paid-up capital with substantial premium in the course of the current financial year.

The company’s loss figure at the end of the third quarter looks likely to swell up further at full year, which has been the trend since 2013. Its profit crash of 87% in 2013 to N1.40 billion happened against an expectation of a strong profit recovery in the year based on the third quarter report.  While the company posted an after tax profit of N10.70 billion at the end of the third quarter in 2014, it closed the year with a loss of nearly N184 billion. With rising losses and diminishing net assets, Oando’s dismal earnings reading isn’t expected to change any time soon.





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