FORTE OIL'S 2015 FORTRESS

A fortress is emerging for Forte Oil PLC against the vagaries of these times. It helped to insulate it from the arrows of 2015 and looks set to be more effective this financial year.
According to the 2015 audited results downloaded from the group website, the fortress started to take shape when in 2014 there was deliberate investment in 100 trucks  alongside existing investment in property and securities.
Hence come financial year 2015 there was 189.8% increase in income from these non-core business sources as freight income rose and gains came from securities held to maturity and  investment property disposed of.
Thus income from these sources ended the year at N4051m compared to N1398.2m in 2014.
Now the part of that that came from disposed property may not be available again but not to worry, the fortress was further fortified.
In 2015, in spite of the times, Forte Oil increased the book value of its fixed property and equipment by 15.1% as it overhauled its 414MW Geregun power generating plant in other to increase capacity to 435MW by mid 2016.
Now it was the same plant that contributed substantially to Forte Oils 2015 bottom line as its utilisation rose to 138MW in nine months in 2015 compared to 105MW at the time in 2014.
This overhaul gulped N8.9bn in 2015 at a time Forte Oil also had to reduce overdraft by 37.8% to N10268.4m from N16496.2m.
Both applied tremendous liquidity pressure within the year leading to working capital deficit of N2571.4m compared to N291.2m surplus in 2014.
This was in spite of the draw down of inventories by 17.6% to N10059.9%; decrease in receivables by 34.9% to N34896.6m from N63600.2m  and 27.2% drop in cash to N11700.8m.
Now who said fortress building was easy? However the point still remains that it was resultant 21.3% drop in net finance cost to N1675.8m from N2130.4m that guaranteed double digit growth in profit in 2015.
So the components of the emerging fortress were diverse but all working together saved the dragging effect of 26.8% drop in core revenue from N170128m to N124617.4m accompanied by double digit growths in distribution and administration costs.
Outside the non- core business dominated fortress the one favourable development was 29.9% decline in direct costs to N106255.8m, that is ahead of the drop in core revenue.
Administration expenses came up with its arrow in the form of 18.7% increase to N10969.9m alongside distribution cost 11% increase to N2754.2m, all in spite of the core revenue drop.
In the end, fortress held firmly as Forte Oil closed 2015 with 16.8% rise in profit before tax to N7012.4m from N6006.3m with distributable profit on it's own growing by 30% because of less than proportionate tax provision.
Thus in these trying times, Forte oil ended 2015 with N5.45 gain on each N100 income as against N3.35 in 2014.
SO:
* To make the fortress more solid in 2016, not only must the Geregun overhaul finish on schedule, Forte Oil needs to learn to stay atop its overhead.
* Unfortunately, cash may continue to be tight especially since dividend is being recommended in spite of the stretched liquidity position.

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