Oando’s recurring negative retained earnings threaten future dividend payment

Oando’s recurring negative retained earnings threaten future dividend payment

Oando Nigeria Plc is the most embattled company in the country today. The board of directors has been accused of mismanagement, incompetence, and breach of corporate governance code.

It is logical that when directors fail to carry out their fiduciary responsibility as specified by the law, owners or shareholders can have them removed.

We have decided to analyse the company’s financial statement pre- ConocoPhillips acquisition.

Some analysts said that shareholders of Oando are disappointed because the acquisition of ConocoPhillips in 2014 for a consideration of $1.50 billion was a colossal mistake, as the company became more indebted or highly levered.

 

In 2013, pre- ConocoPhillips acquisition, the Nigerian oil, and gas giant recorded a profit after tax of N1.39 billion albeit a negative working capital of N127.55 billion.

 

 

 

OandoPlc: Five Year Financial Summary

  2013 2014 2015 2016 2017
Finance Costs (N’m)          21,630          38,780          54,010          68,310              21,110
Operating Profit (N’m)          16,550 –       139,660          15,690 –         7,660              14,690
Profit Before Tax (N’m)              713 –       171,320 –       32,730 –       26,800 –         839,908
Profit After Tax (N’m)            1,390 –       183,890 –       31,197            3,494                4,661
Admin Expenses (N’m)          41,390          271,870          74,070          109,260              31,660
Retained Earnings (N’m)          33,930 –       153,580 –       199,720 –       152,280 –         151,340
Total Debt (N’m)          255,180          473,330          215,810          264,540            240,140
Total Equity (N’m)          162,360          45,550          50,890          192,344              198,750
Negetive Working Capital (N’m) –       127,150 –       322,100 –       247,870 –       263,760 –         257,430
Times Interest Cover (xx)                76 –               81                29 –               11                      70
Debt to Equity Ratio (%)              157            1,051              424              138                    121

 

 

 

 

The company has always had huge debt in its capital structure as debt to equity ratio was 157.15 percent that year. Positive retained earnings of N33.15 billion meant the company was in a position to pay dividend to shareholders.

However, in 2014, post-acquisition of the assets, the company’s financial health began to deteriorate faster.

The company suffered an operating income loss of N139.66 billion as at December 2014 while net loss stood at N183.89 billion. The company was burdened by huge debt as debt to equity ratio hit an all-time high of 1045 percent while negative working capital was N322.10 billion.

Operating expenses of N271 billion incurred in 2014 was 64 percent of total revenue. The company recorded negative retained earnings of N153.15 billion.

Like a snail carrying its shell, the Nigerian oil and gas giant has been carrying negative retained earnings in the balance sheet to date.

Negative retained earnings prevent a firm from paying a dividend; little wonder shareholders are enraged because they are not getting a return for investing their hard earned cash in the company.

It should be noted that a negative working capital means a firm has working capital challenges as current assets can no longer cover current liabilities. Perhaps more worrisome is the fact that Oando has been ensnarled in a working capital quagmire in the past four years.

 

Quick Takes

Oando directors got 55.30 percent of 2016 profit

The 2016 audited financial statement of Oando shows directors’ emolument, salaries, and remuneration of N1.93 billion is 55.30 percent of net income of N3.49 billion. This is a generous paycheck for stewards whose performances have been below par.

 

Suspension of Shares

The Nigerian Stock Exchange, on Wednesday, October 18, suspended trading on the shares of OandoPlc as directed by the apex regulator, the Securities and Exchange Commission.

The apex regulator said it suspects insider dealings, discrepancies in the shareholdings structure of the company, related party transaction not conducted at arm’s length and breach of corporate governance code.

SEC has appointed global accounting body Deloitte to conduct a forensic audit into the activities of Oando.

OandoPlc was reported to SEC by two of its shareholders, Gabriel Volpi and AlhajiMangal over an allegation that Wale Tinubu has mismanaged the firm, and is thus pushing for his removal from the board.

 

 

 

 

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