Oando, is losing sales revenue for the second year this year but the company is rebuilding profit rapidly after a huge drop last year. The petroleum company is by its second quarter result likely to remedy an unexpected 87% profit crash in 2013 and push profit to a new peak this year.
Lifting profit from the lowest level in many years to a distant new peak is likely to be the summary of Oando’s operating story in 2014. The company looks ready to beat every other listed company on exceptional profit growth this year.
The company’s group chief executive officer, Mr. Wale Tinubu seems to be getting to the breakthrough point of all his complex strategic applications that have finally launched the company into a leading energy solutions conglomerate in Africa. He is expecting even more robust financials from the $1.5 billion acquisition of ConocoPhilips’ Nigerian business, which has increased Oando’s scale of upstream operations.
Tinubu’s winning strategy this year is the use of a cost cutting approach to shield and grow profit in a falling sales revenue situation. This has given Oando the highest profit margin seen in many years. Building the biggest profit ever out of two years of declining sales revenue will be a major feat accomplished in Nigeria’s corporate arena in 2014.
The company closed its second quarter operations in June with a turnover of N194.59 billion, which is a drop of 30.6% from the corresponding period last year. Revenue growth is however expected to step up in the second half of the year. Based on the current growth rate, sales revenue is projected at N395 billion for Oando at full year. This will be a decline of 12.2% from the turnover figure of N449.87 billion the company posted in 2013. It will also mean a drop for the second year after losing 30.8% of its 2012 peak sales revenue last year.
The company achieved stable growth in turnover for three years to 2012 and lost the growth momentum last year. The full year revenue picture for this year is expected to change with the incorporation of new operating activities scheduled to commence in the second half of the year.
The company earned an after tax profit of N8.98 billion at the end of the second quarter, which is a rise of 88.6% year-on-year. This is already more than six times the full year net profit of about N1.40 billion the company reported at the end of 2013.
Based on the current growth rate, full year net profit is projected at N18.50 billion for Oando in 2014 – the highest profit figure in record. This will be an exceptional recovery/growth of 1221.4% in profit for the company – the strongest profit growth likely in the entire group of listed companies this year.
The company had lost its profit growth momentum in 2012 and profit has dropped for the second year from the peak of N14.37 billion it recorded in 2011. With the restructured operations, a change in the rise and fall pattern of profit may be expected. Caution is however required in that the company for now is building profit out of a falling sales revenue, which cannot be sustained. Oando needs to establish a track record of stable growth in sales revenue and profit.
The strength to lift profit this year is built around one major cost cutting success. Cost of sales has fallen by 42.4% to N144.05 billion year-on-year at the end of the second quarter. This is a more rapid drop than the 30.6% loss of sales revenue during the period. This means it cost the company significantly less to generate a unit of sales than in the preceding year. Consequently, gross profit margin has risen by 67.1% to N50.51 billion over the review period, lifting gross profit margin from 10.8% to 26% over the review period.
Administrative cost is the only major expenditure line that moved against the trend of declining costs with a rise of 37% to N25.20 billion. Other operating income dropped alongside sales revenue at 23.4% but a leap of 144.5% in operating profit to N23.69 billion evidences an overall cost reduction during the period.
The high growth in operating profit was moderated by net interest expenses, which surged up by 217.4% to N11.21 billion at the end of the second quarter. A mild reduction in balance sheet debts has happened in the first six months of the year but total borrowings remain huge at close to N239 billion.
Other significant changes in the balance sheet from the 2013 closing position include a jump of 112.9% in cash and bank balances, a rise of 41.4% in trade and other payables and an increase of 32.4% in trade and other receivables. Inventories also closed higher by 27.9% over the same period. The company’s cash flow position has improved with the proceeds of issue of new shares and a significant drop in net cash used for investing activities.
The company earned N1.01 per share at the end of the second quarter, up from 63 kobo in the corresponding period last year. Earnings per share this year is moderated by an increase in the volume of shares coming from a new issue. Earnings per share is projected at N2.08 for Oando at the end of 2014, a rebound from 23 kobo per share in 2013.
The company has proposed an interim dividend of 70 kobo per share for shareholders in the books of the company on 17th November and payment is to be made on 15th December 2014. It is also paying a dividend of 30 kobo per share for its 2013 operations with a qualification date of 30th September and payment date of 17th November 2014.
