Well damn it seems every CEOs favourite reason for missing earnings estimates (the Naira bogeyman) has struck again.
Oando PLC, a Nigerian indigenous energy group listed on both the Nigerian and Johannesburg Stock Exchange, says its expects to report materially lower earnings for the second quarter of 2016 due to the impact of the Naira devaluation against the US dollar (“USD”),resulting in unrealized foreign exchange losses.
The announcement is for the unaudited financial statements for the period ended 30th June 2016.
According to Oando, the impact of the Naira devaluation by the Central Bank of Nigeria (“CBN”) is expected to amount to an unrealized foreign exchange loss arising from USD denominated liabilities, outstanding bank trade facilities as well as vendor payables.
Oando says as at the time of the devaluation the company had USD denominated borrowings of ~$261Million in Naira dominated earnings businesses, consisting of ~$68 Million in core loans, $89 Million in bank trade facilities,~$83 Million in Asset Financing and $21 Million in other payables
“A circa 40% devaluation in the value of the Naira against the US dollar from the bank rate of N199.00:$1.00 to N280.00:$1.00 has effectively resulted in these significant foreign exchange losses which we have prudently booked into our financial statements.”
In other words the company is blaming the CBN for its inability to effectively hedge its dollar exposures. More perplexingly, Oando’s revenues should be a natural hedge against currency movements as it earns dollars from its sale of crude oil.
The company now expects investors to believe that were it not for devaluation, perhaps they might have posted stronger earnings further justifying its N80 billion. Oando share price closed at N6.6 losing 4% on Monday.