By Peter Egwuatu
Capital market operators and shareholders of Oando Plc have commended the company’s half year (Q2) financial report released last week on the Nigerian Stock Exchange (NSE), attributing the upward movement of major performance indices to management’s diversified strategy.

Specifically, Oando recorded a Profit Before Tax (PBT) of N10.8 billion for the half year ended June 30,2010, representing an increase of 105.50 per cent from the same corresponding year, 2009. The company recorded a turnover of turnover N172,859 billion against N165,036 billion for the half year ended 2009. This represents a growth of 4.74 per cent.

The Group grew its Profit After Tax (PAT) by 73 per cent  to N6.6 billion with  turnover rising by 5 per cent to N172.9 billion.
Other financial performance shows that the company recorded a net profit of N6.6 billion, representing 73 per cent growth.
According to Sir Sunny Nwosu, National Chairman, Independent Shareholders Association of Nigeria (ISAN) who spoke the minds of his members  said, “Oando’s second and first quarter results ,2010  came in quite strongly.

The 105.5 per cent and 17 per cent  increase in top line for both first and second quarter was driven by factors which include: (i) the commencement of revenue generation from the Akute Power Plant commissioned for the Lagos State Water Corporation in 2009; (ii) one of the company’s rigs which had not been put to use in the first quarter of last year, but was deployed in 2009, reported earnings through the first quarter of 2010; (iii) the Company’s exploration and production division also booked relatively higher earnings on the back of increased oil production from OML 125, and the commencement of production in OML 56.”

Commenting  on the performance as well, Mr. Wale Tinubu, Group Chief Executive, Oando Plc said: “We are pleased to announce another resilient financial performance for the first half of our financial year that validates our diversified business model. Overall, positive performance was recorded in the downstream, midstream and upstream divisions of the company”.

The Upstream division realised additional revenue from the newly deployed swamp rig and the steady ramp up in production from the oil & gas portfolio; the Midstream division commissioned its maiden Independent Power Plant (IPP) and additional connects on its gas pipeline network; whilst the Downstream division made the largest contributions to profitability with the recovery of outstanding payments from the Petroleum Support Fund (PSF), and an increase in throughput as a result of  the implementation of the Sovereign Debt Note Programme by Federal Government of Nigeria (FGN), which guarantees future subsidy reimbursements.

Commenting further, Tinubu said, “Our focus for H2, 2010 will be to maximize current earnings from existing portfolio, whilst bringing on stream projects in the midstream and upstream to improve overall profitability.

The Upstream division is expected to increase production as a result of the commissioning of the OML 56 pipeline and  the deployment of the third swamp rig to commence operations in our oil services subsidiary; the Midstream division will commission and commence operations on its 128Km gas pipeline, which traverses the South East region of Nigeria; the Downstream division will be partly divested to release equity to the Group for investment in the Upstream division, with the support of the FGNs indigenous and local content  industry reforms.

“With these initiatives and barring unforeseen circumstances we are confident in our ability to deliver an outstanding financial year end performance”, Tinubu added . Vetiva Capital Management Research Unit, an operator in the capital market has stated that Oando’s 2010 second quarter results came in with a strong performance in its profitability as it superceded its own forecast .

According to Vetiva, “ The company’s February-commissioned Akute Power Plant continued to impact positively the performance of its Gas and Power Division, whilst revenue generation from its rigs was boosted as an additional rig which commenced drilling in H1’10.

Similarly, OML 56 which commenced production recently added to it upstream revenues. Whilst the company had previously trucked the products out of the asset, it completed during the quarter, a pipeline which would reduce its transportation costs and improve production volumes from the Obodeti/Obodugwa fields.

“Despite a 13 per cent  increase in its marketing expenses and a sustained climb in its administrative costs, following the start-up of the Akute Power Plant and increased rig and upstream asset depreciation, the Company’s profitability margins soared. PBT and PAT margin stood at 6.27 per cent and 3.80 per cent (a 6-year high), up from 3.20 per cent and 2.31 per cent Q2’09; and  5.57 per cent and 3.44 per cent in Q1’10 respectively.

Whilst we note considerations such as reduced Cost of Sales for its Trading Division on the back of the Sovereign Debt Note Program and margin improvements from its diversified subsidiaries, we also point to the relatively flat revenue in its Trading arm, which emphasizes the margins of the other subsidiaries in the Group’s financials for the half year period.

The Company’s balance sheet also shows a substantial adjustments in its liabilities. Trade Creditors reduced from N40.129 billion to 18,705, representing an improvement of 53.39 per cent. The Net Assets increased to N78,268 billion from N53,520 billion, showing a growth of  46.98 during comparable  periods.

Oando, which has its primary NSE and a secondary listing on the Johannesburg Stock Exchange had in the first quarter result posted 18 per cent growth in its revenues, while PBT increased more 10 impressively by 109 per cent.