Oando Plc, Nigeria’s integrated energy company, has released its unaudited financial results for the first half of 2024, reporting a pre-tax profit of N45.51 billion. While the company posted strong revenue growth, its profit margins were significantly impacted by rising costs and increased financial obligations, marking a stark contrast to the prior year.
Key Financial Metrics (H1 2024 vs H1 2023)
- Revenue: N2.03 trillion (up 51% YoY from N1.34 trillion)
- Cost of Sales: N1.94 trillion (up 50% YoY)
- Gross Profit: N82.29 billion (up 61% YoY)
- Operating Income: N121.93 billion (down 30% YoY)
- Profit Before Tax (PBT): N45.51 billion (down 178% YoY from N126.86 billion)
- Profit After Tax (PAT): N62.64 billion (down 44% YoY)
- Basic Earnings Per Share (EPS): N5 (down 44% YoY)
Despite a 51% increase in revenue, pre-tax profit and earnings per share (EPS) saw dramatic declines, driven largely by increased finance costs and higher administrative expenses.
Profit Decline Explained
Oando’s profit before tax (PBT) declined by a substantial 178%, from N126.86 billion in H1 2023 to N45.51 billion in the same period of 2024. The key contributors to this decline include:
- Administrative Expenses: Up by 76% YoY to N233.35 billion.
- Finance Costs: Increased by 72% YoY to N93.8 billion, contributing significantly to the 58% increase in net finance costs.
- Operating Income: Despite higher revenues, operating income fell by 30%, indicating rising costs were outpacing revenue growth.
In the second quarter of 2024, Oando posted revenues of N810.34 billion, with gross profits amounting to N38.71 billion. However, the company recorded a profit after tax of N140.37 billion, which includes gains from foreign exchange revaluation.
Revenue Growth Drivers
The company’s growth was largely driven by strong performances from its two key business segments:
- Supply & Trading: This segment, which handles the sale of petroleum products via Oando Trading Dubai, Bermuda, and PLC, saw its revenues rise to N1.8 trillion from N1.3 trillion in the previous year. However, despite the revenue increase, the Supply & Trading segment posted a pre-tax loss of N9.8 billion.
- Exploration and Production (E&P): The E&P business showed impressive growth, with revenues rising to N152.3 billion, more than doubling the N42.39 billion reported in H1 2023. This segment contributed N107.7 billion to the group’s pre-tax profits, making it the largest contributor to overall profit.
External Funding and Debt Increase
Oando’s balance sheet showed a sharp increase in external borrowings, which stood at N1.6 trillion as of the end of June 2024, up from N818.3 billion in the previous year. This increase was primarily due to:
- The company obtaining an additional N655.5 billion in new loans, partly offset by N289.4 billion in repayments.
- Afrexim Bank, Access Bank, and Intercompany Loans were key sources of Oando’s financing, with Afrexim being a major lender.
Notable Financing Deals in H1 2024
During the period, Oando engaged in several significant financing transactions:
- Project Gazelle: The company participated in a $3.3 billion crude-backed finance deal, contributing $550 million in partnership with AfreximBank.
- Temporary Overdraft: Oando took a N58 billion overdraft for working capital, with partial repayment and rollover of N42 billion.
- FX Forward Contract: The company entered into a N16 billion forward contract with Argentil, which also helped to partially repay its overdraft facility.
Acquisitions and Strategic Investments
Oando also made significant strides in acquisitions during the period:
- M1 Petroleum sold 2.22% of Oando E&P shares to Calabar Power for $30 million, with phased payments completed in 2024.
- NAOC Acquisition: In August 2024, Oando acquired Eni’s NAOC (National Petroleum Corporation) assets for $500 million, funded by a mix of $500 million and $150 million loan facilities.
- Loan for NAOC Assets: A $40 million loan was secured by Calabar Power for acquiring a 20% stake in the NAOC JV, guaranteed by Oando.
Outlook
Despite the decline in profitability, Oando’s strong revenue growth and its ongoing strategic investments suggest potential for long-term growth. The company is positioning itself well within the energy sector, particularly in its Exploration & Production and Supply & Trading segments, which are driving its revenue growth.
However, rising finance costs and administrative expenses could continue to weigh on the company’s ability to improve margins. Investors will be closely watching Oando’s continued ability to manage its debt and execute its ambitious acquisition strategy while navigating the current challenges of the Nigerian energy market.