Forte Oil Plc, Nigeria downstream oil and gas player said unpaid government debts, tight credit, and a devalued naira is hurting sales as half year profits faltered.
Analysts say if the federal government continues to delay subsidy monies, the balance sheet of fuel marketers in Africa largest economy will continue to take a one or two punch, jeopardizing shareholder’s return on investments.
For the first six months through June 2015, Forte oil’s net income fell by 19.25 percent to N2.53 billion as against N3.13 billion the previous year.
Sales reduced by 23.13 percent to N61.61 billion as the company continue to grapple with economic doldrums that has befallen the country in the past year.
“PMS is our major revenue driver whose supply was extremely inadequate in the first half of the year 2015 due to the delays in payment of outstanding subsidies by the government,” the company said in an email to BusinessDay
“This resulted in inability to import products as the banks were unable to finance LCs for importation due to the huge exposure to subsidy. We however maximized our margins from the products available and also concentrated on deregulated products,” said the company.
Fuel marketers in Africa largest economy earlier in the year were in dispute with federal government over subsidy arrears amounting to $1 billion that caused crippling fuel shortages and nearly brought economic activities nearly ground to a halt.
The shortage left service stations closed, aircraft grounded, and businesses unable to operate.
Forte oil would have lost more to the uncertainties but thanks to its focus strategy and costs control mechanisms as cost of sales reduced by 25.0 percent to N52.83 billion, impacting positively on gross profits that reduced by a single digit 9 percent to N8.32 billion.
The company’s administrative expenses moved by 51.94 percent to N5.93 billion in the period from N3.90 billion the previous year resulting in a 39.05 percent drop in operating profits to N2.74 billion.
Forte said the increase in operating expense was majorly due to forex loss of N1.5 billion on its dollar acquisition loan of the Geregu Power Plant.
“We also acquired 100 Mercedes Benz trucks whose depreciation charges and insurance charges of about N200M were not incurred as at 2014 half year,” said the company.
Analysts at FBN Capital said most marketers are likely to continue to stay on the sidelines given unclear policy signals by the new administration and the FG’s poor fiscal condition.
“This effectively suggests that the Nigerian National Petroleum Corporation (NNPC), which accounts for around 40 percent of the total gasoline market in Nigeria, is likely to remain the primary importer through H2 2015, said analysts at FBN Capital
Forte oil’s total assets were up 15.60 percent to N117.51 billion in June 2015 as against N139.23 billion last year. Shareholder’s funds was flattish at N44 billion.
Forte oil has one of the most effective and efficient logistics with the injection of 100 new trucks to support the uninterrupted supply of petroleum products across the country and exceptional service delivery.
The company’s share price closed at N208 on the floor of the exchange while market capitalization was N260.50 billion.
“We have resumed importation of PMS with our first cargo arriving Shorty. This will boost our revenue in subsequent quarters and ultimately increase our profit compared to the quarters we had no imports, said the company in the statement.