Oando Plc issues profit warning as naira fall raises debt by N24 billion

Oando Plc
GMD/CEO Oando Plc
The difficult times at Nigeria’s leading indigenous energy group, Oando Plc is not going away soon as the company on 18 July warned that it is likely to make a significant loss in its soon to be released half year results for the period ending 30 June.
The company is expecting to incur a significant loss as a result of the sharp fall in the value of the naira. This is because Oando owes US$261 million in debts which has just ballooned due to the fall in the naira from N199 to N292. At the higher exchange rate of N199 to the US$, the value of Oando’s debt stood at N51.9 billion, but the lower value of the naira at N292.5 as at 19 July, means that the value of Oando’s debt in naira, now stands at N76.34 billion, representing a N24 billion rise in the company’s debt obligations.
Oando has revealed that the businesses owing the debt are its naira denominated businesses, which will make it quite challenging to pay off this additional debt burden, unless the concerned business can improve its profitability significantly within a short period of time by transferring its increased cost of operations to its customers.
However, in the statement made available to the stock exchange, Oando’s management expressed the confidence that “ Despite the challenging operating landscape in 2016, we reiterate our focus of returning the Group to profitability by growing our dollar earning higher margin upstream and export trading businesses, which will not be impacted by the volatility of Foreign Exchange rates to the Naira.”
“We remain confident in our diversified business model and the long-term prospects for growth in Nigeria and beyond. Further details of the Group’s financial performance will be disclosed when the Half Year unaudited financial results are announced and during the subsequent results conference call” the company further stated.
Oando has recently restructured its huge debts to Nigerian banks and also sold down assets in a bid to get out of its difficult financial situation. Investors will be eagerly waiting for the company to show some clear road map on how it intends to get out of its increasingly difficult financial situation. The company’s share price closed at N6.60 on 18 July and its actually up 11.9% this year.