N38bn loss: Oando counters Ernst & Young concern over future

Oando Oil's Managing Director Wale Tinubu attends an Oil and Gas conference in Nigeria's capital Abuja February 21, 2012. REUTERS/Afolabi Sotunde

*Oando Oil’s Group Managing Director, Wale Tinubu. REUTERS/Afolabi Sotunde

12 July 2016, Abuja — Auditing and services company, Ernst & Young, has raised concerns over the soundness of Oando Plc, stating that the current financial position of the company may cast significant doubts on its ability to continue as a going concern.

Ernst & Young, stated this in its Independent Auditors’ Report to the Members of Oando Plc, contained in the company’s ‘Annual Reports Consolidated and Separate Financial Statements’, for the year ended, December 21, 2015.

The auditor said, “Without qualifying our opinion, we draw attention to Note 47 to the financial statements which indicate that the Group reported comprehensive loss for the year of N37.8 billion (2014: loss N116.5 billion) and as at that date, its current liabilities exceeded current assets by N247.9 billion (2014:N329 billion).

“The company also incurred a comprehensive loss of N56.6 billion for the year ended 31 December 2015 (2014: loss N66.5 billion) and as at that date, its current liabilities exceeded current assets by N32.8 billion (2014: N34.7 billion).

“The note indicates that these conditions, along with other matters, indicate the existence of a material uncertainty which may cast significant doubt on the Group’s ability to continue as a going concern.”

In its reaction , however, Oando said the ‘reservations about our going concern status’ as stated by Ernst Young is a standard industry practice and reporting tool, adding that its stringent application was due to the reporting guidelines set by the Financial Reporting Council by auditors relating to firms that declare losses & impairments in a period of time.

The company, in an email statement to Vanguard, stated that 2015 remained a turbulent year for all players in the global oil and gas industry, with Oando being no exception, adding that the company’s financial position has never posed a threat to the continued existence of the company.

The statement said, “As we come to terms with this new reality of low oil prices and challenging macro and micro environment, the company is fully focused on implementing corporate initiatives to optimise our balance sheet and assets, while also aggressively reducing our existing debt profile.

“It is imperative to note the following in our positioning as a long term viable investment and our commitment to creating shareholder value: With a loss after tax decrease from N145.7 billion to N49.7 billion, we significantly improved our loss position by the end of 2015.

“A slow but steady recovery is evident in our first quarter profit of N4.1 billion, despite the macro & micro issues that plague the oil and gas industry; the first quarter of 2016 demonstrates our dedication to return to profitability by the end of 2016.”

The company further stated that it successfully restructured its already existing debt through a N94.6 billion Medium Term Note with lower capital costs and a renewed 5 year tenor, while despite impairments and losses in the last two years, the company remains a viable business with the backing of local and international banks and partners The company added that it recently concluded a recapitalisation of its downstream business with a Helios-Vitol consortium, which it said would significantly impact our debt profile.

In its financials for the 2015 financial year, Oando had announced a 73.81 per cent increase in its revenue from N92.91 billion in 2014 to N161.49 billion.

It, however, recorded a loss before tax from continuing operations of N32.736 billion, down from N88.726 billion in 2014, while losses for the year from continuing operations dropped to N31.198 billion from N93.64 billion recorded in 2014.

Oando also posted N18.49 billion loss for the year from discontinued operations, down from a loss of N52.019 billion; while its loss for the year stood at N49.69 billion compared with a loss of N145.655 billion in 2014.

The company’s revenue was depleted by the cost of sales of N106.75 billion, rising sharply by 115.17 per cent from N49.61 billion recorded in 2015, leading to a gross profit of N54.737 billion, compared to N43.3 billion in 2014.

The company also recorded administrative expenses of N74.078 billion, down from N161.223 billion in 2014, while it recorded operating profit of N15.69 billion as against operating loss of N51.919 billion in 2014. Oando, however, stated that the Group’s net loss for the year of N49.7 billion (Company: N56.6 billion) had been transferred to retained earnings.

*Michael Eboh – Vanguard

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