| Corporate Results |     3848 VIEWS  |
| Corporate Results | |
| 3848 VIEWS | |
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Monday, April 01, 2019 09.30AM / NSE
Oando PLC has once again
demonstrated its ability to deliver good results and create value for
shareholders. The indigenous oil company on Friday, March 29, published its
financial results for the full year ended, December 31, 2018. Despite a
challenging local environment, Oando was able to maintain a trend by posting
positive results for the third consecutive year with the announcement of a
N28.8 billion Profit-After-Tax (PAT); a 46% increase from the N19.8 billion the
company posted at full year end 2017.
A
review of Oando’s results shows positive performance across most of its
financial indices; reaffirming the company’s concerted efforts and commitment
to reversing the tide following the oil price crash in 2014. 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 a challenging
local terrain this is indeed a feat worth applauding. The company’s
positive performance has ensured it maintains its position as Nigeria’s leading
indigenous oil company. As at full year end 2018, turnover increased by 37% to
N679.5 billion compared to N497.4 billion in 2017, driven primarily by higher oil
prices resulting in higher oil revenue and higher gas prices, which led to
higher gas revenues. In addition, gross profit grew by 9% to N96.3 billion from
N88.1 billion in 2017.
The company’s balance sheet remained
strong with a 46% increase in PAT to N28.8 billion from N19.8 billion in the
comparative period of 2017 driven by higher revenue and income tax credits. Its
total Group borrowings decreased by 11% to N210.9 billion from N237.4 billion
in 2017, while long term borrowings decreased by 23% to N76.8 billion compared
to N99.6 billion in the same period of 2017.
Worthy of note is the fact that,
since its acquisition of ConocoPhillips Nigeria in 2014, Oando has embarked on
a proactive drive to significantly reduce its debt and liabilities. From
a N473.3 billion corporate facility in 2014 to N210.9 billion in FYE 2018, a
55% decrease and in its upstream business, the company has reduced its debt by
70% from $801.6 million in 2014 to $260 million as at FYE 2018.
Speaking on the significant reduction
in borrowings, the Group Chief Executive of Oando, Wale Tinubu said: “Our asset base is delivering
strong free cash flows as evidenced by a 70% reduction in our Upstream
Borrowings since the closure of our landmark acquisition of ConocoPhillips’s
Nigerian assets in 2014.”
The company’s FYE 2018 results are
further evidence that the company’s management team is focused on maintaining a
strong balance sheet, profitability, value creation and a business that is
indeed here for good. The company’s 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.
Speaking
on the FYE 2018 results, Alhaji
Tambuwal, an Oando shareholder commended the management of Oando for leading
the company to yet another profit, he said: “We
can see light at the end of the tunnel. My faith in the management of the
company grows from strength to strength with each financial result. I’m
hopeful that soon, in the very near future we the shareholders can finally reap
the fruits of our labour.”
Wale
Tinubu hinted at the prospect of a dividend payment in the near future. He
said: “We remain confident in
our ability to deliver significant value to shareholders in the years ahead as
well as resuming our dividend payments.”
In the year under review, the
Nigerian economy experienced the highest Gross Domestic Product (GDP) growth
rate since the third quarter of 2015. GDP grew by 2.4% year-on-year in the last
quarter of 2018 which surpassed market projection of a 2.1% gain. The economy
maintained a positive growth trajectory driven by the recovery of oil prices
for the most part of the year. This gave a boost to the macroeconomic
fundamentals which saw a reduction in inflation to 12.4% at the end of 2018
compared to 12.7% as at December 2017.
Nigeria alongside Angola, Algeria and
Egypt remained a major contributor to Africa’s share of global oil production
which increased slightly by 0.3% to 8.7% standing at 8.1 million bbl/d. Crude
oil prices averaged $72/bbl per barrel compared to $52/bbl in 2017. However, in
the fourth quarter of 2018, crude prices weakened while natural gas prices
strengthened with higher LNG prices. The realized selling price of commodities
in 2018 compared to the prior year increased by 33% for crude oil, 27% for
natural gas deliveries and reduced by 3% for NGLs.
The exchange rate was relatively
stable in 2018 in different segments of the Forex market. At the parallel
market, the naira hovered within the band of N361/$ – N363/$. Higher oil prices
and stable local production levels of crude oil are the two key critical
factors that restored calm in the forex market.
However, the oil sector shrank 1.6%
in the fourth quarter of 2018, after contracting 2.9% in 2017. The country
produced 1.91 million barrels of crude oil per day (mbpd), lower than 1.95 mbpd
in the same period of 2017. As a result, the oil sector accounted for 7.1% of
GDP compared to 7.4% in FYE 2017.
Against this backdrop, ExxonMobil
recorded a $20.8 billion profit in the full year ended December 2018 compared
with $19.7 billion in same period of 2017 while Total recorded a net income of
$13.6 billion in 2018 from $10.6 billion in 2017, like Oando both businesses
showed growth from 2017 in their financial performance.
Speaking
further on Oando’s 2018 FYE financials Wale 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.”
In
addition to an impressive financial statement, the company recorded operational
highlights. In the Upstream, Oando recorded a 2% increase in proven oil
reserves to 479.8 mmboe from 470.7mmboe while net revenues in 2018 increased to
$407.0 million from $333.7 million in 2017.
According
to a press statement issued on the company’s website, the outlook for 2019 is
optimistic. The press statement read: “Our
upstream business will continue to pursue production growth initiatives through
strategic alliances, whilst ensuring operational efficiency and fiscal
prudence.”
In
the downstream, Oando traded over 14 million barrels of crude oil under various
contracts with the Nigerian National Petroleum Corporation (NNPC) as well as
delivering 739,876 MT of refined products, acting as a key source of liquidity
to the Group. The company 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.
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 3rd consecutive year of profits.
Indigenous
companies such as Seplat Petroleum have also picked up from the oil glut; the
company’s revenue saw an increase from 2017 standing at N228 billion in 2018
compared to N138 billion in 2017. This increase in revenue was as a
result of higher oil production together with higher oil price
realizations. Despite this increase in revenue the company recorded a
lower PAT compared to 2017, specifically N45 billion PAT for full year end 2018
from N81 billion at full year end 2017.
Despite talks of diversification, it is highly
unlikely that the country's oil sector will lose its relevance as the main
driver of the country's economy in 2019. Key policy reforms will be an
imperative to support and sustain macroeconomic stability. These include oil and
gas sector reforms, especially the Petroleum Industry Bill (PIB), a reduction
in the cost of governance at all levels amongst others.
A total of 42 oil block licenses held by a mix of
international and indigenous operators will expire this year. The renewal of
the licenses is expected to boost Government revenue, create more openings for
indigenous players to participate and encourage more investment in the nation’s
oil and gas industry. Already the country’s 2019 budget has received a boost
with the coming on stream of Total Petroleum’s Egina with a 200,000 barrels of
oil per day to the country’s crude oil production.
As supply increases and oil prices
rise, volatility will continue to shape strategy in the oil and gas sector
globally. Consequently, portfolios have to be resilient, innovation needs to
thrive, and productivity and capital efficiency must remain the bedrock of
operations. Only those companies and economies who can do all these will
prevail in the near to medium term.
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