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FORTUNE OIL PLC
REVIEW OF OPERATIONS
Infrastructure
The Single Point Mooring (SPM) facility
reported a net profit of £3.4 million, a drop of 6 per
cent from the same period last year (2001 : £3.7
million). During the period, 21 Very Large Crude Carriers (VLCCs)
were discharged at the SPM with a total throughput volume of 4.4
million tonnes (2001 : 4.6 million tonnes). Turnover, was lower at
£7.0 million (US$10.1 million) (2001 : £7.9
million (US$11.4 million)), primarily due to a reduction in the
throughput fee, from US$2.5 per tonne to US$2.3 per tonne. However,
the effect of this reduction on profitability of the facility was
mitigated by a reduction in operating costs. The adjustment in the
throughput fee was agreed between the partners in the SPM
joint-venture and Sinopec Maoming branch, which is wholly dependent
on the SPM for importation of foreign crude oil. In recognition of
the fact that, in recent years, SPM throughput volumes have been
significantly higher than the guaranteed volumes of 4.5 million
tonnes per year, the throughput fee has been reduced to assist
Sinopec Maoming branch's continued growth in the long-term. We are
confident that this agreement will allow the SPM to provide
attractive returns in the short-term and secure long-term growth.
The technical preparation for the second SPM,
including Feasibility and Geophysical studies, Hydrological and
Meteorological Surveys, Technical Design and Health, Safety and
Environment Reports have been completed. An alternative technical
solution, to build a second 48 inch diameter pipeline parallel to the
existing 36 inch pipeline from the current SPM to the shore and to
delay construction of the second SPM, is also being considered. The
pipeline solution would reduce the immediate investment required
whilst also retaining the possibility of a second SPM for future
growth when necessary. At present, relevant documents have been
submitted to Sinopec Head Office and other government organisations
for approval.
The Bluesky Aviation Refuelling joint venture
made a significant improvement in the consistency of its operations
and reported an encouraging net profit of £2.4 million
(US$3.4 million) in the first half of 2002 (2001: breakeven). Sales
volume increased by 7.8 per cent over first half 2001, reflecting
continuing strong growth in the Chinese aviation sector. However,
revenue fell 6.7 per cent to £85.5 million (US$123.9
million) as a result of lower prices in the international and Chinese
domestic oil products markets.
In the second half of 2001, the joint venture
partners were successful in securing a revised pricing policy for
Bluesky, which links into-plane prices for aviation fuel to
international market prices. This new formula has proved to be
effective in stabilising margins for Bluesky. Bluesky improved its
gross margin from 13 per cent in first half 2001 to 19 per cent in
first half 2002.
Simultaneously, systems for better risk
management and improved capital management have been put in place.
Inventory turnover days have been lowered to an average of 17 days
from 33 days in first half 2001. This greatly reduced Bluesky's risk
exposure to jet fuel price fluctuations as well as decreasing the
working capital tied up in fuel inventories.
Construction of the new Guangzhou Airport is well
underway and on schedule. We expect the airport to commence operation
in early 2004 with resultant increases in sales volumes.
The progress we have made and the hard work we
have put in yielded tangible results in the first half of 2002. We
expect Bluesky to continue its good performance in the second half of
the year.
The West Zhuhai Oil Products Terminal and
Storage joint venture has entered a period of steady growth in
its performance which has validated our decision to establish a
strategic partnership with China National Petrochemical Corporation
(CNPC), one of the two oil majors in China, by bringing it into the
joint-venture in 1999.
Throughput volume was 948,000 tonnes, up 2.7 per
cent from the same period last year. Total revenues were
£2.3 million (US$3.3 million) with a net profit of
£0.9 million (US$1.3 million), 3 per cent and 75 per cent
higher respectively than those in the first half of 2001. The
improved result was partly due to a reduction in interest charges, as
explained below.
The joint venture repaid all existing bank loans
last year and arranged a new loan of US$8.43 million from a Chinese
bank at a much lower interest rate. The loan, along with US$1.81
million from internally generated funds, was used to repay part of
the shareholders' loans, thereby generating positive cash flow for
shareholders. Another major achievement in the first half was the
completion of the second phase development of the terminal on
schedule and within budget. It includes an additional 110,000 cubic
meters of gasoil / gasoline storage and two new 1,000 MT - class
berths. With the expansion in capacity and continued debt
restructuring, we are confident that the project will provide
attractive returns to its shareholders.
The Zhanjiang Fu Duo Liquefied Petroleum Gas facility
continued to operate in a difficult market environment in the first
half of 2002. Gross margins were squeezed by fierce competition from
local supply depots and regional refineries. On the other hand, the
restructuring of the Company, initiated in 2001, started to show some
positive effects. Sales volume increased 19 per cent to 36,387 metric
tonnes and the net loss narrowed to £300,000
(US$435,000). Fu Duo has rationalised its subsidiaries to stabilise
income and significantly reduce overhead costs. We are actively
exploring ways to enhance returns from Fu Duo, such as the
establishment of strategic partnerships with regional refineries and
local depots that offer synergies with the operations of Fu Duo.
AcroChina Technology Inc. The joint
venture has three major businesses : developing application software
for the oil industry, acting as a sales agent for Oracle in the
Chinese petrochemical sector and undertaking systems integration work
for large petrochemical companies in China. It reported a small loss
of £126,000 (US$182,000) in the first half of 2002, due
to the poor technical market environment (2001: profit
£103,000 (US$149,000)).
We have therefore implemented downsizing and
cost-cutting measures. The overhead costs have been reduced by 9 per
cent compared to the second half of 2001. In addition, we are seeking
to form strategic alliances with the major players in the market to
increase revenues. Nevertheless, we expect that the technical market
situation will remain uncertain for the rest of the year.
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