Amidst falling oil prices, Forte Oil rode on the back of diversification to record profits in 2015, writes Goddy Egene

The declining oil price since last year has affected the Nigerian economy in many ways. As the major source of forex earnings, it has led to shortage of United States dollars, which has, in turn, affected manufacturers negatively. Oil firms are even worse hit as their earnings face serious threat. Investors in the sectors are already apprehensive as the companies prepare to release their 215 results. However, the first among the oil firms to announce its 2015 performance, Forte Oil Plc, recorded improved bottom-line despite the challenging environment. But a closer look at the performance showed that apart from efforts to reduce operating expenses, the company reaped from its strategy diversification that fetched significant earnings from other value chain of its energy business.

Corporate Profile
Forte Oil Plc is one the foremost indigenous major marketers of refined petroleum products. Forte Oil Plc was incorporated on December 11, 1964 as British Petroleum Nigeria Limited. After 14 years in operation, the company changed its status from a private limited liability company to a public liability company. In 1977, 40 per cent of the company’s shares were sold to Nigerians in compliance with the provisions of the Nigerian Enterprises Promotion Decree of 1977. A year later 60 per cent was acquired by the Federal Government of Nigeria in favour of the Nigerian National Petroleum Corporation (NNPC). In November 1979 the name British Petroleum was changed to African Petroleum Plc. NNPC’s stake in AP was reduced by 20 per cent in March 1989 after the Federal Government sold the above percentage to Nigerian Citizens, increasing their stake from 40 per cent to 60 per cent. In the year 2000, the federal government under its privatisation programme divested its remaining 40 per cent to core investors and interested Nigerians.

The shareholding structure took a new shape as Incorporated Trustees of NNPC’s Pension Fund divested its stake to Zenon Petroleum & Gas Limited in 2007.

Under the new management, African Petroleum embarked on a rebranding and restructuring programme which led to a name change to Forte Oil Plc in December, 2010. The company has a strong presence in the 36 states of Nigeria and the Federal Capital Territory (FCT), Abuja and operates a network of 500 outlets spread across the Country with major fuel storage installations at both Apapa (Lagos State) and Onne (Rivers State).

In addition to these strategic retail and commercial network in Nigeria, Forte Oil Plc is also well established in Ghana under the trade name-AP Oil and Gas Limited (APOG), with a network of retail outlets, liquefied petroleum gas plants and a lubricant blending arrangement with Tema Oil blending plant. Forte Oil is currently using its presence in Ghana to leverage its expansion into other West African Countries as it seeks to dominate the African Energy market.

The Company also has a footprint in the upstream oil services sub-sector, where is has established a reputation of efficiency; servicing the upstream sector under trade name- Forte Upstream Services Limited (FUS). It also engages opportunities in the upstream sector to fulfill its aspirations of being present at every point of the energy value chain. Its acquisition of the 414 mw Geregu Power Plant is a demonstration of the company’s strategy to deliver long term returns for its shareholders.

Forte Oil PLC’s business philosophy is premised on building a high-performance organisation with world-class business processes, strong corporate governance and compliance at all levels, culture of strong ethics and discipline and an enhanced safety, health and environment policy embedded across its value chain.

2015 Financial Performance
The company recorded a revenue of N124.62 billion for the year ended December 31, 2015, showing a decline from N170.13 billion posted in 2014.

Profit before income tax increased 16.7 per cent to N7.01 billion compared to N6.01 billion recorded in 2014, while profit after income tax increased 30 per cent to N5.79 billion from N4.46 billion posted in 2014. Earnings per share jumped by 86. 8 per cent from N2.29 to N4.11. The board of directors of the company recommended a cash dividend of N4.50 billion, which will be paid to all shareholders upon the ratification of the proposal at its forthcoming annual general meeting.

A further analysis of the results showed that Forte Oil witnessed an increase in capacity utilization at Geregu power plant in 2015. However, margins reduced from 58 per cent to 42 per cent due to increase in gas costs cause by exchange rate fluctuations.

But Geregu Power Plc has declared a dividend of N2.50 billion to be paid to all shareholders upon ratification of shareholders at the company’s annual general meeting.

Management’s Comments
Commenting on the performance, Group Executive Director, Finance and Risk Management, Forte Oil Plc, Mr. Julius Omodayo-Owotuga said: “The decline in Revenue of 27 per cent was as a result of the reduction in pump price for most petroleum products largely driven by the incessant decline in crude oil prices. In addition, the company also decided to manage its foreign exchange and subsidy exposure by reducing the importation of petroleum products for the year 2015.”

He added that other income increased by 190 per cent due to income from investment in securities held to maturity, freight income from the 100 trucks acquired the previous financial year and sale of investment property.

“The increase in admin expenses is a result of our decision to exit Dollar denominated loans and convert same to Naira at prevailing exchange rates. Our ability to grow shareholders wealth despite the unfavourable economic environment is a testament to our belief that the business is on a solid and safe trajectory and will continue to consolidate on gains made,” he stated.

Commenting in the same way, the Group Chief Executive Officer, Forte Oil, Mr. Akin Akinfemiwa, said: “This result in a testing economic climate which we operate, is the reward from the investments made by the company in its core business and its people. It also clearly demonstrates the resilience of our business. Furthermore, our vision to diversify into Power generation has proven to be very successful not just in the near term but in the long term and we see tremendous growth opportunities in that space.

He equally linked the group’s sustained improved performance to highly motivated and skilled employees as well as excellent customer service delivery across all business lines.

The $200m Equity Capital Boost
Before the last quarter of 2015, Forte Oil was relying heavily on bank borrowing to finance its operators. This was affecting its bottomline. However, the company enjoyed an equity capital injection of $200 million by Mercuria Energy Holdings SA.

According to Forte Oil, the $200 million was made Mercuria Energy to acquire 17 per cent in the company. Market operators had described that development as a positive move that would impact the fortunes of Forte Oil positively going forward.

The company had explained that the through the $200 million, it has secured additional working capital to continue its meteoric growth and dominance in the downstream sector, upstream services, power generation and upstream exploration in its bid to becoming Nigeria’s premier integrated energy solutions provider.

“Mercuria is joining forces with Forte Oil at an auspicious time when equitable funding and expertise is needed to expand and intensify its market penetration to give the company the leverage to further create a positive impact for all shareholders. This is another step towards projecting Forte Oil Plc as the investment of choice as reflected in our mission statement,” the company had explained.

Forte Oil added that the investment was geared towards improving the group’s working capital and would be used for the expansion of the downstream and power generation businesses in Nigeria as well as positioning itself for future opportunities in the Nigeria oil and gas sector.