Facts behind Oando’s downstream divestment

 Earlier this week, Oando Plc announced that it had entered into a strategic partnership with Helios Investment Partners and Vitol group to divest 60 percent economic rights of Oando Downstream sector.

However, Oando did not expressly state that this partial divestment will reduce the group’s earnings before interest tax depreciation and ammortisation (EBITDA) to N16.6 Billion.

Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance. Essentially, it’s a way to evaluate a company’s performance without having to factor in financing decisions, accounting decisions or tax environments.

Meanwhile, the deal is set to reduce Oando Plc’s finance cost by N12.2 billion, move profit after tax to N8.9 billion and Increase Net current Assets to N55.6 billion, as projected in the company’s 2016 strategic objectives presented to the Nigerian Stock Exchange.

Oando explained that partial divestment and recapitalisation of the downstream division of which net proceeds of approximately N44billion will be used entirely to pay down debt, while deconsolidation of the downstream division will remove the downstream debt from the Group’s statement of financial position.

CEO of Oando Plc., Mr. Wale Tinubu, during his presentation further explained that the group’s gross Margin decreased by N11.2 billion in first quater of 2016, 55 percent below what was achieved in 2015 due to: Lower margin driven by lower revenue from the downstream sector (N3.7 billion) and higher production expenses leading to reduced margin of N8.6bn in Q1 2016.

He aslo added that the downstream trade receiveables amounting to N5.1 billion contributed significantly to the group’s overall impairment loss on receivables valued at N20.6 billion.

According to Mr. Tinubu, Oando’s proactive approach to establish a strategic partnership will leverage Oando’s sector dominance, and with considerable local knowledge and expertise; together with HVI’s international, and technical capabilities, the partnership will reinvigorate Nigeria’s downstream sector and create one of Africa’s largest downstream operations.

“We are extremely confident in the success and potential returns this alliance will deliver.The new company will be renamed OVH Energy (“OVH”) to reflect its ownership structure and the commitment of its new shareholders. OVH will be led by a local management team, tasked with building the business, safely and efficiently. Under the new business structure, the initial Board will consist of Mr. Wale Tinubu, Group Chief Executive of Oando Plc., as the Chairman, Mr. Christian Chammas, CEO of Vivo Energy, operating 1600 service stations across 16 African countries and other Vitol and Helios representatives. The current CEO, Mr. Yomi Awobokun, will continue in his role. The service stations will retain the Oando brand.” he said.

With this new partnership, OVH’s assets will comprise over 350 service stations in Nigeria with supportinginfrastructure, including 84,000 tonnes of storage and a newly built inbound logistics jetty; as well as complementary businesses, chiefly

LPG filling and distribution, lubricants and an interest in a supply and bulk distribution company in Ghana. The new business will be the second largest downstream fuels company in Nigeria, with a market share of 12 per cent.

Other strategies highlighted for the downstream sector by the company in the current fiscal year (2016) include Completion of construction & commencement of operations of he Apapa Jetty and subsea pipelines in the Lagos Port; commission 3rd party commercial & technical feasibility for the Eastern 4KT LPG Tank farm construction; and Commencement of first phase for the Apapa Terminal upgrade.

On supply and trading, Oando wishes to Focus on increasing market share in existing markets and achieving economies of scale; while in marketing, the company aims to Conclude process of Group’’s partial (60 percent) divestment, Maintain a minimum (25 percent) current white products market share of MOMAN, Position for a partial/fully deregulated gasoline market, Maintain LPG leadership strategy amongst MOMAN whilst growing national share from 17 percent to 20 percent.