Oando Plc had its analyst presentation and earnings call on the 29th of September where its CEO and CFO responded to questions from analyst regarding the company’s 2013 full year results and 2014 half year results. I missed the earnings call due to conflicting engagements but listened to the podcast version which you can also listen to here.
Here are the top take outs from the conference call.
1. On why gross margins was high in H1 2014 compared to same period in 2013
- They had no disputes in “revenues dates” for their OES (downstream) business in 2013 compared to 2014
- Gross margin contribution from the sale of EHGC (East Horizon Gas Company) was not present in the first half of 2013.
- There was a recognition of “make up gas” from the Gas & Power division which had been delayed but now included in gross margin for the first half of the year.
- There were also reversals of provisions that was made for “exchange day receivables” as well as disputed interest claims on the petroleum subsidy fund which was resolved in the first half of the year and written back to profit.
2. On Capital Expenditure –
The CEO responded that the company plan to spend the following on Capex from 2015 to 2019
- 2015 $425m “Net to OER $85m”
- 2016 Net to OER $120m
- 2017 $200m
- 2018 $153m
- 2019 $137m
All their capex funding will be funded out of cash flows and not envisaged that they will require any additional third party funding or debt to finance capex”.
3. On Current Oil production
The CEO responded that the company now has a production capacity of 52,000 barrels per day “net to OER”
60% 40% Gas to Oil for OER asset. Legacy Assets are all oil non Gas and contribute 5,000bpd maximum.
18,000 barrels a day from COP and 5,000 a day from Legacy Assets which is 23,000 in total. Gas accounts for the balance.
4. On when they hope to obtain Pioneer status for the COP Asset
They have applied for Pioneer status for COP Asset and “are confident of getting positive response” and will add $130m-$150m to bottom line when approved.
5. Downstream Sale
They want to sell about 49% of their downstream asset via a sale to a strategic investor or by listing in the NSE. The CEO Opines “something will happen in the next six months”.
6. Gross Capex Spend on Oando as a Group
- 90% of Capex will be in Upstream business
- Gas market – Spending $40m in Lagos expansion project. Not increasing in 2015.
- Next big project is the Pipeline system “Escravoas Illorin Java Pipeline” Lagos scheduled for 2016
- No major capex except maintenance in the downstream. And they don’t spend more than N3billion on an annualised basis.
7. Revenue and profit of Alausa Independent Power Plant?
Margins at Alausa is quite small and will earn about $3million a year.
8. Expected revenue and profit from COP
Revenue of $700m and $400m from EBITDA. It is likely to grow because it was based on 2013 data where they had major flooding. Shut down period in COP (environmental)
9. What is COP’s PAT
COP was $180m PAT and was based on reduced production which was under 40k bpd. 2014 is a 20% increase so they expect PAT to be in excess of $200m. They will publish the contributions in a few weeks time. Interest cost is about $90m
10. What was the reason for the decline in revenue and cost of sales in 2013
Massive glut in the market in 2013 caused decline. Decline in revenue affected decline in gross margins.
11.Can we expected to see those high gross margins for Q3?
Margins will be close to 33% in Q3 but can’t promise the same exact margins because of the write backs of Q2 2014 etc.
12. What aspects of the downstream business are you divesting from?
Retail operations will be divested (petrol stations). Trading business will continue and requires very small equity.
13. Dividends
Is this a new dividend policy or just a compensation?
They will be paying an interim and final dividend henceforth and will be funded mostly from the upstream. Much focus will be from the upstream business.
the site is quite informative