Forte Oil is sustaining earnings recovery for the third year running this year and the petroleum marketing major can be expected to hit the biggest profit in five years. A downslide in earnings performance bottomed out in 2012 and a strong return to profit happened last year. Profit recovery trend is presently in the third year. Sales revenue is likely to be higher than any time in the past five years and profit is headed for an all-time peak at current growth rate.
Mr. Akin Akinfemiwa, the company’s managing director/chief executive officer, seems to have overcome the critical stages of corporate turnaround and has reached the cruising level. He seems set to achieve one of the strongest growths in the oil marketing sector this year, up on the 432% advance last year.
A major change that has happened in the company’s operations is the rebuilding of sales revenue after four years of sustained drop. This is an indication that the company is regaining market share. The company achieved the first recovery in sales revenue in 2013 after a sustained drop brought turnover to the lowest level in many years in 2012. The healthy growth in sales revenue is being maintained in the current year.
The company recorded a year-on-year increase of 32.8% in turnover to N79.61 billion at the end of the second quarter. This represents an accelerated growth from the sales revenue of N34.78 billion in the first quarter. Based on the second quarter growth rate turnover is projected at N162 billion for Forte Oil at the end of 2014. That will be an increase of 26.5% over the sales revenue figure N128.03 billion posted in 2013.
The company reversed its falling revenue trend only last year when it recorded an increase of 40.7% in turnover. Until then, sales revenue had been falling since 2009.
Forte Oil is headed for a new peak in profit performance this year, sustaining two years of recovery. It closed the second quarter with after tax profit of N3.13 billion, which is a leap of 125.2% over the corresponding period last year. This is a major acceleration from the profit figure of N1.1 billion in the first quarter.
If the second quarter growth rate is maintained, full year net profit is expected to stand in the region of N6.4 billion for Forte Oil in 2014. This will be an increase of 28% over the full year profit figure of N5.0 billion in 2013.
The company had lifted after tax profit by 432% in 2013. That was a strong return to profit after a virtual break-even in 2012. The company had posted huge losses in the preceding three years to 2011. Its peak profit was the N5.10 billion it earned in 2008 form a turnover of N162.6 billion.
Another significant event in the affairs of the company is the rebuilding of profit margin. Net profit margin has improved from 1.0% in 2012 to 3.9% in 2013 – which has been maintained at the end of the second quarter. This is an improvement from 2.3% in the second quarter of last year and from 3.2% in the first quarter of this year. At 3.9%, Forte Oil is second to Mobil Oil Nigeria’s 11.4% net profit margin within the petroleum marketing group at the end of the second quarter.
The gain in profit margin follows both the strong growth in sales revenue and a moderated growth in operating costs. Cost of sales grew at a slower pace of 30.2% than turnover, which improved gross profit margin. At N70.61 billion, cost of sales represented 88.7% of turnover at the end of the second quarter, down from 90.4% in the corresponding period last year. Gross profit margin therefore improved from 9.6% to 11.3% over the review period. This permitted a rise of 56.9% in gross profit to N9.0 billion in the second quarter.
Another favourable cost behavior came from distribution expenses which declined by 7.8% to N1.46 billion during the period. Administrative expenses also moderated relative to revenue at an increase of 26.6% to N3.75 billion. Net interest cost also increased moderately at 5.6% to N338 million – showing that the company achieved an all-round cost moderation during the review period.
Major changes in the balance sheet over the first six months of the year include a drop of about 24% in long-term borrowings to N11.34 billion, an increase of 17.7% in short-term debts to N5.86 billion and the tripling of bank overdraft facility at N14.68 billion. Trade and other receivables grew by 33.4% to about N42 billion, cash and bank balances expanded by87.8% to N12.75 billion while trade and other payables rose by 27.3% to N45.95 billion over the December closing figures.
The high rise in bank overdraft follows some cash flow pressures the company experienced during the period. Net cash generated from operating activities dropped by 69% to N3.68 billion. Some support came from investing activities, where interest income generated a net cash of N1.43 billion. Internally generated cash was however insufficient to meet the financing needs of the company with a net cash of N8.91 billion used for financing activities.
The company earned N1.91 per share at the end of the second quarter compared to N1.29 in the corresponding period last year. Based on the projected profit for owners of the company, earnings per share is forecast at N3.84 for Forte Oil at the end of 2014.
