http://businesswiseng.com/2015/10/27/oando-plc-how-not-to-run-a-world-class-company/

Oando plc: how not to run a world class company

The audited financial accounts of Oando Plc for the period ended December 31, 2014 clearly exposed the rot that has started in the company in the last few years. Poor management of financial resources and investment decisions on the side of management impacted negatively on the company’s performance.

The physical evidence was the loss declared by the board of the company for the financial year ended 2014. One could objectively argue that the company lacks what it takes to turn its fortunes around and establish it as a formidable player in the nation's oil and gas industry.

Oando’s 2014 financial outcome also confirmed analysts’ prediction earlier this year that Oando might not be able to record profit by the end of the financial year 2014.

In the last five years Oando has put up a struggle to stay afloat. It does not however come as a surprise that the company’s financial state degenerated into a loss in 2014.

A breakdown of the figures presented by the company to the Nigerian Stock Exchange (NSE) by Businesswise showed that majority of its financial ratios such as Return on Assets (RoA), Profit Margin (PM), Current ratio (CR) and Debt to Equity ratio nose-dived compared to the previous seasons.

Gross Earnings dropped from N650.6 billion in 2012 to N424.7 billion in 2014. This represents 35 percent drop. Loss before Tax (LBT) of N171.3 billion represents 24.12 percent decline from N713.2 million while Net Profit dropped from N1.4 billion in 2013 to a loss of N183.9 billion in 2014.

Shareholders equity or shareholders’ fund decreased to N45.5 billion in 2014 representing 72 percent drop from N162.4 billion in 2013. It is obvious shareholders are gradually losing their stake in the company.

The company’s short term debt of N311 billion in 2014 exceeds Shareholders’ Fund by 583 percent, leaving a deficit gap of N265.4 billion. Technically, shareholders no longer have any stake in the company as equity has been eroded by debt. The burden of debts is currently eating deep into the company’s bottom line as it paid over N38 billion as interest expenses on short term debt in the review financial year ended December 31, 2014.

While it is expected ordinarily that management would introduce cost management measures to stay afloat, Oando’s administrative cost has kept on rising. Administrative expenses rose by 557 percent from N41.4 billion in 2013 to N271.9 billion in 2014. Administrative expenses in 2014 represents 64 percent of the company’s total revenue generated.

Based on its spending pattern, debt burden, poor bottom-line and rising cost of sales, it is not likely that the company will return to profitability in the nearest future.

CEO ‘s Position on Historic Loss

The new realities of lower oil prices needs to be reflected in the valuation of companies, this is according to Oando’s Chief Executive Wale Tinubu. Tinubu made the comments at the backdrop of the company reporting a record historic loss of 184 billion naira ($926bn) in 2014. He added, these new realities of low oil prices were reflected in the oil company’s balance sheet and indicated the group’s appropriate positioning. Tinubu said there were projects Oando PLC had started which the company stopped as it could not continue considering today’s oil prices.

“We have oil blocks that we will no longer put into production which we have as a legacy portfolio, we have resolved to appropriately provide for,” he told CNBC.

He also warned over the future prospects in the oil space. “We are seeking a platform to deal with a challenging future which we see will occur in the near future due to a dwindling exchange rate, increase in interest rate and weak oil price." He added that, though it was known that, it was cheap to drill oil in Nigeria, other factors needed to be considered. “The question is, is it sensible to sanction a project considering the current oil price which we know is not profitable,” he questioned. “Sometimes it’s better to analyse the risk profile and right off certain assets without long term gains.”

Tinubu said Oando had a convincing value proposition for investors. “Here is the company (Oando) that has integrity in its financials and has been brave enough to do what is right even when the future of oil price is uncertain,” he said. “We have also successfully done a major acquisition for 1.5 billion US dollars, paid about 400 million US dollars of debt and generated over 600 million US dollars in cash over the past year.”

Source:http://businesswiseng.com/2015/10/27/oando-plc-how-not-to-run-a-world-class-company/