…stock down 6.4% year-to-date; underperforms NSE ASI
Iheanyi Nwachukwu
Shareholders of Forte Oil Plc have approved the company’s divestment plan for some of its subsidiaries. Forte Oil Plc, a leading integrated energy solutions provider in Nigeria is looking to sell some of its subsidiaries to significantly reduce finance cost in the Group and increase distributable earnings for the benefit of shareholders.
Forte Oil Plc sought and received the approval of its shareholders at the 39th Annual General Meeting (AGM) held Wednesday May 23, 2018 in Lagos to take a strategic step to restructure its business by divesting its interests in its Ghana operations, upstream services and power business, in order to ensure adequate funding is available for the downstream business. This formed part of the special businesses at the company’s annual general meeting.
Listed on the Nigerian Stock Exchange (NSE), Forte Oil Plc is an operating holding company (HoldCo) under which the Group undertakes its downstream business in Nigeria, and also holds interests in AP Oil & Gas Ghana Limited (100percent), Amperion Power Distribution Company Limited (57percent) – the vehicle through which the Group’s interest in Geregu Power Plc is held, and Forte Upstream Services Limited (100percent).
The core of Forte Oil’s operations is in the downstream oil and gas segment, and the Group has established itself as a foremost indigenous petroleum marketing company with a rich history and strong operational platforms.
The directors of Forte Oil Plc got the approval of the shareholders to at an agreed time, terms and conditions – restructure the Company by divesting its Upstream Services Business (Forte Upstream Services Limited), its power generating business (Amperion Power Distribution Limited), and its downstream business in Ghana (AP Oil & Gas Ghana Limited).
The proceeds of the divestment initiative will also enable Forte Oil Plc to compete more favourably and achieve the planned expansion of the business for increased market share. The Group foresees immense prospects in the downstream oil and gas sector, and is positioning proactively to harness these opportunities.
The approval comes on the heels of the company’s share underperforming the Nigerian Stock Exchange All Share Index (ASI) year-to-date (ytd). While Forte Oil Plc share price has lost 6.4percent this year to N40.70 per share as at Wednesday May 23, 2018; the NSE ASI return is positive at 4.99percent.
The restructuring process is expected to take between six and nine months to complete.
At the meeting presided by Femi Otedola, Chairman Forte Oil Plc, the Group CEO of the company Akin Akinfemiwa, said; “We had a board meeting to deliberate on the future of the company in a deregulated market. We concluded on focusing our resources on our core competence, and streams of uninterrupted dividends for our shareholders.”
The proceeds from the divestment of the Upstream Services business and the power generating business will be used to fund Forte Oil Plc downstream marketing business strategic expansion and repositioning initiatives.
The divestment action will reduce finance cost in the Group significantly and increase distributable earnings for the benefit of the shareholders. The finance cost attributable to the businesses to be divested stood at N2.7billion and N2.2billion for the year ended December 31, 2016 and December 31, 2017 respectively.
The downstream subsidiary in Ghana has consistently declared losses after tax (LAT) in the last three (3) years and in addition to the aforementioned losses, the subsidiary has substantial bad and uncollectable trade debts in the business as a result of negative economic conditions and currency devaluation in prior years.
The audited financials of Forte Oil Plc for the year ended December 31, 2017 adopted by shareholders at the annual meeting show revenue declined to N129.44billion from N148.60billion in 2016, representing a decrease of 12.9percent. The group’s net finance cost stood at N3.63billion, from N4.28billion in 2016, down by 15.2percent. The group’s Profit Before Tax (PBT) doubled to N10.63billion in 2017 from N5.34billion in 2016, representing an increase of 99percent.
Despite the significant resources deployed including management time, Forte Oil Plc upstream services business has consistently contributed less than 7percent to the Group earnings in the last three financial years.
Forte Oil has two storage depots with a total capacity of 46.4million litres, five aviation fuel depots with a total installed storage capacity of 14.7million litres and a lubricant blending plant with an installed capacity of 30,000 metric tonnes per annum. The Group also owns 100 Mercedes Benz trucks for distribution of products across its over 500 retail outlets and huge commercial customer base.
Pursuant to the post-listing requirements of the Nigerian Stock Exchange (NSE) for quoted companies, Forte Oil Plc recently notified the NSE that the Company has obtained exclusive rights for the distribution of Chevron’s Havoline Motor Oils. The company commenced marketing of the product from April 25, 2018 and shall officially launch the product on May 10, 2018
The downstream sector of Nigeria’s oil and gas industry has witnessed significant changes in recent years and is expected to further evolve in the near-term. These changes continue to affirm Forte Oil Plc strong belief that only downstream operators with huge investments in both storage and distribution infrastructures can remain competitive and operationally efficient in the long-run.
