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Oando and IAS 24: What the law cannot do by @Doubleeph



When you prepare a set of accounts to International Financial Reporting Standards (IFRS), one of the things you are required to do is disclose any ‘related party’ transactions. The accounting standard that covers this disclosure requirement is IAS 24.

Here’s what the IFRS website says about IAS 24:

The objective of IAS 24 is to ensure that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances, including commitments, with such parties.

A related party is a person or an entity that is related to the reporting entity:

A person or a close member of that person’s family is related to a reporting entity if that person has control, joint control, or significant influence over the entity or is a member of its key management personnel.

An entity is related to a reporting entity if, among other circumstances, it is a parent, subsidiary, fellow subsidiary, associate, or joint venture of the reporting entity, or it is controlled, jointly controlled, or significantly influenced or managed by a person who is a related party.

A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged. If an entity has had related party transactions during the periods covered by the financial statements, IAS 24 requires it to disclose the nature of the related party relationship as well as information about those transactions and outstanding balances, including commitments, necessary for users to understand the potential effect of the relationship on the financial statements.

In other words, if the managers of a company transfer resources to a company that all or one of them is related to, it must be disclosed in the accounts. A simple example of this is the CEO’s wife being awarded a contract to supply food for the company’s AGM. That is a related party transaction.

But notice what the IAS does not say. It does not say such a contract to the CEO’s wife to supply food should not be awarded. Such things are not banned. All that is required is that you disclose them. Why not just ban them since we know such things can cause problems and foster corruption?

This is an example of where the law stops and where human behavior is supposed to take over. If such transactions are banned, the managers of a firm might find new ways to hide them. But by asking them to disclose them in the accounts, it is as if the IAS is trying to prick their conscience to do the right thing. In other words, managers will now be confronted with a question anytime they want to award a contract or transfer resources to a related party – how will this look when it is disclosed to shareholders and the public? What if the press sees that the CEO’s wife got a contract worth N100 million and publishes it, how will this make us look as a firm?

Thus, without banning related party transactions, the requirement to disclose them changes the behavior of the managers of a company. Even if the CEO is tempted to give his wife that contract, he will have to think twice about whether it is worth it.

In theory.

One thing Nigerians like to say is that the country turns established laws on their head such that things that have worked elsewhere fail to work when implemented in the country. What the same Nigerians never explain is why this is so. IAS 24 is a very good example of why such laws don’t work in Nigeria. The simple reason is that the law leaves room for human behavior in the expectation that people will do the right thing for the most part. It is certainly better to design laws this way so that people have a stake in it. Thus, to comply with such a law, companies will design their own internal code of conduct (such as how they verify contractors, legal checks etc) to ensure they do not get into trouble.

But in Nigeria, this is hardly the case. Before IFRS people were behaving in that way i.e. handing out contracts to family members and nothing happened to stop them – shareholders can be bought off with dividends and the press can be bought off with brown envelopes. But the most fundamental point is that it is not illegal to award a catering contract to the CEO’s wife. It’s just not a cool thing to do.

Which brings us nicely to Oando Plc. This is one of Nigeria’s biggest ‘blue chip’ companies with a balance sheet of almost N1 trillion as at December 2016. In any other country, a company like Oando will set standards for corporate governance and others will follow. You can typically measure how business is done in a country by looking at the business practices of its largest and most connected firms.

Come with me to page 66 of the December 2016 Consolidated Financial Statements of the company. This is where the Related Party Disclosures begin. Beginning from subsection vii we get the following:


Other related party transactions include:

  1. Brick House Construction Company provided building construction services worth N89.3 million (2015: N203.9 million). A key management personnel of Oando Marketing Plc (OMP) is a shareholder and director of Brick House Construction Company Ltd.
  2. Broll Properties Services Limited provided facilities management services worth N161.3 million (2015: N146.4million). The GCE has control over one of the joint interest owners of the company.

iii. K.O Tinubu & Co. provided legal services amounting to N2.3 million (2015: nil). K.O Tinubu is controlled by a close family member of the GCE.

  1. Intels West Africa Ltd provided various services worth N1 billion (2015: N1.3 billion) to Oando Energy Services Limited. Intels West Africa Ltd is owned 70% by a joint owner of OODP, the largest shareholder of the Company.
  2. Lagoon Waters Limited, one of the dealers for the sale of petroleum products, purchased petroleum products and liquefied petroleum gas worth N2.31billion (2015: N2.1 billion) from the Group. Lagoon Waters Limited is controlled by a close family member of the GCE.
  3. Noxie Limited supplied office equipment worth N86.3 million (2015: N42.4 million) to members of the Group. A close family member of the GCE has control over the company.

vii. Olajide Oyewole & co. rendered professional services worth N235.6 million (2015: N217.9 million). A close family member of the GCE has significant influence over the firm.

viii. Pine Crest Specialist Hospital provided medical services worth N13.8 million (2015: N9 million). A close family member of the Deputy Chief Executive Officer (DGCE) has control over the company.

  1. Rosabon Financial Services Limited provided transport services worth N27.1 million (2015: N24.2 million) to the Company during the year under review. Rosabon Financial Services Limited is owned by a director of Gaslink Nigeria Limited.
  2. SCIB Nigeria and Co. Ltd. (‚SCIB‛) provided insurance brokerage services worth N1 billion (2015: N0.8 billion) to various members of the Group. A beneficial owner of SCIB is related to the GCE.

xi.Triton Aviation Limited provided management services worth N8.3 million (2015: N656 million) to Churchill C-300 Finance Limited, an indirect subsidiary of the Company. Triton Aviation Limited is owned by the GCE.

xii. Templegate Consultants Ltd. provided architectural services worth N6 million (2015: N26.6 million) to Oando Marketing Plc, during the year. The managing partner of Templegate Consultants Ltd. is related to the CEO of Oando Marketing Plc, a key management personnel of the Group.

xiii. Transport Services Limited (‚TSL‛) provided haulage services to OMP. During the year under review, TSL provided haulage services worth N2.2 billion (2015: N1.2 billion) to OMP. TSL is ultimately controlled by a close family member of the GCE.

xiv. TSL Logistics Limited supplied products and throughput services worth N229.6 million (2015: N2.1 billion) to OMP. The company is ultimately controlled by a close family member of the GCE.

  1. West Africa Catering Nigeria Limited provided catering services worth N281.7 million (2015: N0.3 billion) to Oando Energy Services Limited. West Africa Catering Nigeria Limited is ultimately owned 49.8% by a shareholder of OODP. OODP has controlling share in the Company.

xvi. F.O. Akinrele & Co. provided legal services worth N825,000 (2015: nil). A non-executive director of the Company is the principal partner of the firm.


Nothing illegal has been done. The issue is that IAS 24, which has worked in other countries to change the behavior of managers, has pretty much failed here. The picture this paints is that when the company needs to get something done, the board members get first dibs. It cannot be the case that the company got value for money for these transactions in all cases. And the company is supposedly run for the benefit of its shareholders.

Aviation services contracted to the CEO, billion-naira transport services contracted to a close family member of the CEO, legal and logistics contracts to other family members of the CEO. And so on.

IAS 24 does not say you should not do these things. But it expects you, with a gentle nudge, not to do them. It asks you to disclose them with the hope that you won’t have too many of such things to disclose. It hopes that managers will choose not to disclose this stuff because shareholders will get upset and the press will have a field day with such disclosures.

Instead the managers of the company are running it for their own benefit and disclosing it ‘with their chest’. The law cannot stop you from behaving this way; it can only encourage you not to act in that manner.

This is Nigeria where things that have worked elsewhere get turned on their head.




  1. OBZ

    September 12, 2017 at 10:33 am

    Great story Feyi. Referral from Smooth FM this morning

  2. Ru

    September 14, 2017 at 2:07 pm

    Regulators, shareholders and the press are equally to blame for this trend. In short, the entire country is waiting its turn to behave likewise. In Nigeria, impunity is not chastised, it is envied.

  3. Anonymous

    January 4, 2018 at 2:17 pm

    No comments

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Analysis: Total Nigeria needs a financial overhaul

 Total Nigeria’s Q1’20 results are a testament that some might have it worse than others as it recorded a revenue drop of 9.3% to N70.2 billion



Total Nigeria, Analysis: Total Nigeria needs a financial overhaul

The Oil Industry has had a particularly tough year, owing primarily to the novel pandemic. The International Energy Agency (IEA) predicts that the global oil demand is expected to further decline this year as Covid-19 spreads around the world, constraining travel as well as other economic activities.

Organizations like Total depending on international trade will be forced to scale down operations until restrictions ease off. However, Total Nigeria’s Q1’20 results are a testament that some might have it worse than others.

The period recorded a revenue drop of 9.3% to N70.2 billion in the first quarter of this year compared to Q1 2019. Total earns its revenue from three main sectors namely: Networks, General Trade, and Aviation. Revenue from Aviation fell by 39.5%. The decline in Networks is attributed to the reduced demand as a result of the enforced lockdown and restriction on travel across the nation.

READ ALSO: Analysis: MTN’s blow out Q1 profit vs Covid-19 headwinds  

Yet, it is clear that the company had its own challenges pre-COVID-19. In the quarter, it attained a loss after tax of N163 million which was 65.6% better than the loss after tax of the comparative quarter; it is overwhelmed by a myriad of distinct issues.

First off, its revenue has experienced a steady fall over the years; reasons for this is tied largely to its lack of importation of petroleum products.

It is also burdened by inefficiencies in its operations evident in its high operational and direct expenses, as well as its high debt over the past years. The company has carried on huge loans and borrowings in its books: N40.6 billion in 2019 and only a marginal reduction of N2.2 billion in the current year.

(READ MORE:Nigeria’s Bonga crude oil export terminal shut down)

Even higher are its expenses after an 8.38% reduction in the just-released results, it arrived at N69.7 billion for Q1 2020. Amongst its high operational expenses is the high and increasing technical fees it pays to its parent company. From N251 million in the first quarter of last year, it incurred around N700m in the year under review. It also has cash flow issues with about N22b in negative cash and cash equivalents. In its 2019 report, it revealed that the year had been tough with its cost of doing business rising exponentially as evident in its interest expense, 395% higher than the previous year as a result of repayment for products and a high level of borrowing.

Total Nigeria records loss for the first nine months of 2019, Analysis: Total Nigeria needs a financial overhaul


The company, in its last full year annual report, noted that to make significant savings to both operational and capital expenditure costs, a series of initiatives relating to cost efficiency, process optimization, and significant reduction of working capital requirement and finance costs, were put in place and are in motion for this year.

READ ALSO: STERLING BANK: Reduced fee income, weak operating efficiency drives steep decline in pre-tax profit

As Dr. Fatih Birol, IEA’s Executive Director put it “The coronavirus crisis is affecting a wide range of energy markets – including coal, gas, and renewables – but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand transport fuels.”

However, Total’s position goes beyond the impact of the pandemic. Its rebound rests on its ability to carry on with cost control and lower debt commitments, together with the speed of the containment of the virus. That said, the company might need to raise capital soon while also coming up with formidable strategies to strengthen its business model.

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Merger, Tax incentive boosts BUA Cement FY 2019 result

BUA Cement Plc recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.



BUA Cement gives succour to host communities in Edo

One of the industries set to experience the downsides of the Covid-19 pandemic is the construction industry. Given the slowdown in construction activities as a result of the lockdowns and constrained economic activities, the reasons are not farfetched.

Prior to the outbreak of the pandemic, Globe Newswire had predicted an accelerated growth pace of the global construction industry from 2.6% in 2019 to 3.1% in 2020. This growth has now been revised to 0.5%. What is even more daunting is that the revised growth rate is based on the assumption that the outbreak will be contained across all major markets by the end of the second quarter of 2020.

It is only after that (including freedom of movement in H2 2020) that events could facilitate reverting to the normal course of activities to foster businesses in the industry like BUA Cement or those that depend on it to restart activities.

Nigeria’s third-largest cement company, BUA Cement Plc, however, still has its 2019 victories in order. Involved in the manufacturing and sales of cement, BUA Cement has 3 major subsidiaries and plants in Northern and Southern Nigeria.

(READ MORE:Update: BUA Cement Plc lists N1.18 trillion shares on NSE)

With a market capitalisation of N1.18 trillion ($3.3 billion), BUA is the third most capitalised company on the NSE. Its recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.

Kalambaina Cement Line 2, BUA Group, Kalambaina Cement, CCNN, Merger, Tax Incentive Boost BUA Cement FY 2019 Results

The company’s profits also increased by 69.1% from N39.17 billion in 2018 to N66.24 billion in 2019. Core operating performance was strong, and this was supported by strong cement sales in the domestic market, impairment writes back, and other income.

Deal book 300 x 250

The main reason for the company’s increased earnings is from the cost synergy and increased revenue as a result of the merger that took place between CCNN Plc and Obu Cement Company Limited.

There was also a striking jump in its income statement on its tax for the year. For FY 2019, it incurred a tax expense of N5.6 billion, in comparison to the N24.9 billion tax credit it received in FY 2018.


This was as a result of a reversal of previous tax provision made on Obu Line 1; it received approvals for an extension of the company’s pioneer status on Obu line-1 and Kalambaina line-2 in February 2020, to leave effective tax rate at just over 8% in 2019. The pioneer status will help the company save funds that will otherwise have been spent on higher taxes.

(READ MORE:Dangote Cement to access more debt funding)

BUA reported an impressive FY’19 result. Its performance shows the growing strength of the company and its increasing market share. On the back of the strong performance, management declared an N1.75 dividend per share that translates to a dividend yield of 5.5% on current prices.

Cash flow position was also robust with a strong closing cash balance – from N2.8 billion in 2018 to N15.6 billion as at year ended 2019. The company’s growth, as well as the impact of its merger, present a great buy opportunity of the highly capitalized, low-cost stock. As of today when the market closed (21st May) its share price stood at N35.60 from a 52-week range of N27.6 and N41.

READ ALSO: COVID-19: Best and worst case scenarios for the Nigerian economy

What we see is a great growth stock further heightened by the population expansion and increased urbanization. However, we expect the impact of the Covid-19 pandemic to be felt from the Q1 results of the company.


The industry could slow down for the year as the level of commercial construction also slows down. Yet the best part of holding stocks like this is that even with stalled operations for a period, a resurgence will always emerge.

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Analysis: Airtel Nigeria is winning where it matters

Airtel has left no stones unturned in ensuring that its provisions are top-shelf – subscribers to the network, of course will have their own ideas.  



Analysis: Airtel Nigeria is winning where it matters.

Airtel might have won our hearts over with internet-war adverts starring our favourite tribal in-laws, but its fundamentals are what will make us the bucks that keep us happy. Airtel Africa Ltd is a subsidiary of Indian telecoms group, Bharti Airtel Ltd; the group has left no stones unturned in ensuring that its provision of prepaid plans, credit transfers, mobile internet services, messaging, roaming facilities and more, are top-shelf – subscribers to the network, of course, will have their own ideas.

Since last year when Airtel Nigeria became the second telecommunication company in Nigeria listed on the NSE, the company has experienced a steady level of growth. With a presence in 14 African countries, the group’s strength lies in its diversity with stronger companies mitigating the poor performances of others.

Performance Overview: Airtel Africa 

Airtel Africa’s report for the year ended March 2020, revenue jumped by 10.9% from $3.1 billion at the year ended 2019 to $3.4 billion in 2020. The consolidated profit before tax also jumped by 71.8% from $348 million in 2019 to $598 million in 2020. However, profit for the period dropped by 4.23% with earnings of $408 million in 2020 from the $426 million it had earned in 2019. A reason for this is the tax figure that moved from a credit of $78 million in 2019 to tax payments as high as $190 million in 2020. Total assets also jumped by 2.41% from 2019’s value of $9.1 billion to $9.3 billion in 2020 primarily as a result of their acquisition of more property, plant, and equipment (PPE). The total customer base grew by 9.3% to 99.7 million for the year ended.

Full Report here.

Revenue growth of 10.9% was driven by double-digit growth in Nigeria and East Africa. However, the rest of its African operations experienced a decline in revenue. Its success in Nigeria is especially commendable, considering the fact that the company lost more than 100,000 subscribers in Nigeria between December 2019 and January 2020. Raghunath Mandava, Chief Executive Officer, remarked that the results which were in line with the group’s expectations, “are clear evidence of the effectiveness of our strategy across Voice, Data and Mobile Money.”

(READ MORE: NCDC and NNPC-IPPG reinforce #TakeResponsibility theme with multi-lingual campaign)

Behind The Numbers – Nigeria

Airtel Nigeria’s performance indicates the company is making the right calls in a very competitive industry. Nigerians are fickle when it comes to data and voice but will spend if the service is right. The company grew its data revenue by a whopping 58% to $435 million a sign that its strategy to focus on data is working. Voice Revenues for the year was up 15% to $850 million. In total, Airtel Nigeria’s revenue was up 24.4% to $1.37 billion. Ebitda margin, a number closely watched by foreign investors 54.2% from 49% a year earlier. Operating profit for the year ended also jumped by 52.6% for the year from 2019 and 32.4% from Q1 2019. Total customer base in Nigeria also grew by 12.5%.

Regulation forces Airtel Africa to initiate shares listing in Malawi , Analysis: Airtel Nigeria is winning where it matters.

Deal book 300 x 250

Nigeria is surely critical to Airtel Africa’s future seeing that it contributes about one-third of its revenue. Recent results thus indicate it is winning where it matters most and it must continue to stay this way if it desires to survive a brutal post-COVID-19 2020. Telcos are expected to be among the winners as Nigerians rely more on data to work remotely but there are other players in this game. Concerning the impact of the pandemic, he explained that at the time of the approval of the Group Financial Statements, the group has not experienced any material impact arising from the impact of COVID-19 on its business.

On cash flows…

The group has also taken measures to enhance its liquidity. The CEO explained that it is moving its focus to enhance liquidity towards meeting possible contingencies.


“Having considered business performance, free cash flows, liquidity expectation for the next 12 months together with its other existing drawn and undrawn facilities, the group cancelled the remaining USD 1.2 billion New Airtel Africa Facility. As part of this evaluation, the group has further considered committed facilities of USD 814 million as of date authorisation of financial statements, which should take care of the group’s cash flow requirement under both base and reasonable worst-case scenarios.”

To this end, they have put in the required strategies to preserve its cash as its cash and cash equivalents, consequently, jumped by 19.1%.

(READ MORE: COVID-19: MTN says it has put strict measures in place to preserve resources)

Buying opportunity

Investors looking at this impressive result will be wondering if this portends a buying opportunity. Airtel Nigeria closed at N298 on Friday and has remained at this price for about a month. The stock is quite illiquid and is not readily available to buy.

It’s the price to earnings ratio of 4.56x makes it quite attractive. Further highlighting this opportunity is its price-to-book ratio which is as low as 0.5273, suggesting that the stock could be undervalued. Whether it is available to be bought, is anyone’s guess.





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