Oando Plc: Key Highlights on Q4’15 and Q1’16

Proshare

 

Monday, July 04, 2016 3.38 PM / TheAnalyst

Oando Plc posted its Q4'15 and Q1'16 earnings reports with constant unimpressive postures and perturbing prospects as its numbers had indicated. Though, not without sliver-lining as Income tax credit of N4.87billion pushed the Oil Giant into profit position for the first time in the recent years, following a removal of the Oando Energy Services (OES) deferred tax liability from its books- this has not really changed its bleak prospect as its Loss before Tax for both periods grew by 63.11% and 20.18%, respectively.

The firm posted a decline of 9.54% in its Q1'16- a negative divergence from its 73.81% positive growth posted in its Q4'15. This further points to us that its business operations remain challenged during the period as its gross profit margin shrinks to close lower at 17.81% against 45.24% posted in Q1'15 and 33.90% recorded in Q4'15. Below are key observations on the reports;

Challenged product penetration and weak market share

The inventory posture of the Oil Giants, which grew by 4.77% as at end of March 2016 points to shrinking market share (which currently stands at 15% of the Nigerian market) and weak market penetration as reflected in its revenue which declined by 9.54% against 73.81% growth posted in Q4'15. This further sheds more light on the significant decline in gross profit by 64.38%, which compounded the burden of cost of sales which went up by 35.78% for the period ended Q1’16. We have seen this as further deterioration of the earnings capacity of the firm. 

 Over leveraged position

The firm sustained modest growth of 8.49% in its Net Assets against 16.70% positive growth recorded in FY 2015- this looks commendable. However, the debt-to-equity ratio of the firm remains astronomically high, which reveals over-leveraged posture of the Oil Giant- its total liabilities stood above N800billion against its N55.22billion of Net Assets.  This further suggests that the firm is more exposed- with less immunity to economic challenges in near-term. This gives us more concerns as its ability to service its debt appeared hampered in the face of dwindling revenue base, which shrinks further by 9.54% in Q1'16 while its negative net finance continued to grow to close at 5.36%- Though this appeared moderated when compared with 29.96% recorded in Q4'15. Understanding this, the company in its Fact behind the Figures which held today mentioned that part of its strategic initiatives for 2016 is to restructure its operations and reduce its debt to about N100bn. 

 Degenerate Working capital as business appeared challenged

The Oil Giant recorded a surge of 22.04% in its negative working capital, which further reflects inability of the firm to generate healthy earnings from its operations- a strong reflection of challenged business operations, poor cost management and bearish macroeconomics fundamentals. This trend needs to be checked as this sends signals to discerned investors as regards the going concern of the entity. This further strengthens its auditors concern as regards the going concern of the firm. 

The auditor’s concerns states thus:

Without qualifying our opinion, we draw attention to Note 47 to the financial statements which indicates that the Group reported comprehensive loss for the year of N37.8billion (2014: N116.5 billion) and as at that date its current liabilities exceeded current asset by N247.9 billion (2014: N329 billion).  The company also incurred comprehensive loss of N56.6 billion for the year ended 31 December 2015 (2014: loss N566.5 billion) as at that date, its current liabilities exceeded current assets by N32.8 billion (2014:N43.7 billion).    The note indicates that these conditions along with other matters, indicates the existence of a material uncertainty which may cast significant doubt on the Group’s ability to continue as a going concern.”

Speaking about the concerns raised by its auditors, the Group Managing Director, Mr. Wale Tinubu admitted that these concerns are known and have resulted in the restructuring exercise which it embarked on and intends to follow through on, while focusing on reducing debt, injecting N45bn to equity and N60bl to enhance operations and create more  shareholder value.

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11.   NSE Continues its Review of the Situation of Oando Plc

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