‘We grew our volumes significantly in the first-half’

In the last six months, we have had two major drivers of the result you are looking at. First, we experienced a 38 percent increase in our profit before tax, propelled by an increase in volume; and second, we recorded an increase in margin. In H1 2016, we grew our volumes significantly. PMS volumes were up about 67 percent, while LPG was over 200 percent. Lubricants also saw volume rise 87 percent, and then we grew our AGO businesses as well.

So what happened was that in terms of volumes, our profit margin swelled. With that said, we also experienced slight increase in margin. If you check our margin, you will realise our gross margin rose 13 percent this year from 10 percent last year. Our net margin has now increased from N4.60 to N6, even as prices surged. But the bulk of the margin improvement is coming from the sale of lubricants. The margin from our lubricant segment has also weighed positively, and better than the margins from other products.

So you will notice that when we sell a lot of lubricants, we make more profit. Because we grew our lubricant business by over 80 percent, we raked in just as much in profit. At the cost line, cost to a large extent reduced by about 10 percent, but the main driver remains the increase in volume and margin.

Yes we are. After all, we grew our revenue by 60 percent. The fact that we have grown our top line tells you that we are profitable and will be giving shareholders more value.

Within a period of one year, not so many companies would have done that, especially with the current economic climate. What you see every day on the Nigerian Stock Exchange (NSE) are profit warnings. But in our case, we have experienced an increase.

The other bit you will notice is that most firms suffered huge devaluation losses, but we didn’t because we saw it coming and were well prepared ahead of time. What we did was that in 2015, we exited our dollar positions. The group exited about $50 million loan obligation. If we didn’t do that, we would have lost about N6billion to devaluation and of course we may have recorded a loss too. The decision to have that done in 2015 actually put us in a better position.

For this period, it has been negative. Geregu gives us the highest margin within the group, and the margin is about 52 percent. However, in the period under review, we had a major overhaul and during this, we had to pull off the grid to handover the equipment and turbines. In the better part of H1, we didn’t operate the turbines. What happened this period is that the revenue and margin from Geregu declined compared to 2015. Profit from the plant was just about N600 million in the period, compared to over N2billion in the same period of 2015.

We have started the process. We started with one but dropped it because what we saw in the data room was not good enough. Then we wanted to buy another major downstream player but we dropped that as well because we saw it would have culminated in a waste of our money.  However, right now we are in talks with another major player and we believe that we have the resources to carry it out; we also have the support of the banks that want to grow with us and are willing to push some money to us for these acquisitions.

Liquidity in Nigeria is generally very stiff and we don’t have a lot of money in the market, but what always plays out in this type of situation is that any company that is profitable and can boast of exceptional corporate governance like ours, would always access loans, and we are well prepared for higher costs of borrowing.

We have done our analysis and it is clear that interest rates will jump 10 percent but if we are going to make more than an extra ten percent from the investment we are embarking on, then why not?

I also think it is temporary, and as things normalise we expect rates to drop. We were expecting rates to go up at the MPC’s meeting. We planned to issue our bond earlier, but when we saw indications that at the time we will be launching, interest rate may be higher, we dropped the idea. We believe that access to funds will not be an issue, it will be more expensive but you need to plan well and ensure you make greater returns on investment.

There are four important things that signal we will consolidate the gains from the first half and even do a lot better in the second half.

We are done with the overhaul of our Geregu power plant. Recall what you have seen in the first half is the effect of one turbine, but we now have three turbines so you can expect higher gains. If with one turbine, the profit was N4 billion, three turbines will mean triple the gains. Also, because of the FX challenges we face today, only companies like Forte Oil can import refined products. What that means is that the players will reduce and of course this will shave supply and boost demand alongside prices.

In addendum, the fourth quarter of every year is naturally the best for us. We always have significant increase in sales because there are a lot of activities in the last quarter of the year. So in most cases, the second half is always better than the first half.

Equally important is the fact that our upstream petroleum company that struggled in the first half is looking up following the fact that oil prices are stabilising. Our customers within that sector are renewing contracts and we believe things will be better going forward.

It has been good. If you check the company (Forte Oil plc), you will see margins are within the region of 10 to 14 percent. There is hardly any other business you will do in this country with a 52 percent gross margin. What we believe is that the diversification is one of the best decisions we have taken so far. We are looking to consolidating on this by buying one or two more. We see it as part of effecting plans for Forte Oil to be the foremost energy solutions provider in the country.