INCREASED expenses surrounding a number of its capital expenditure (capex) projects led to a reduction in profit for Future Energy Source Company Limited (Fesco) at the end of its full year ended March 31, 2024.

The petroleum products supplier – which is growing its network of service stations islandwide and building out a greater market share in the local liquid petroleum gas (LPG) industry – cited these, along with increased depreciation costs, among the factors that have significantly weighed on its bottom line over the reporting period.

Total profits, which stood at $515 million at the end of the 12-month period, represented a 9.8 per cent reduction — $56.2 million less than the record $571.3 million it achieved at the end of the same period in 2023. Three-month net profit, which also plummeted to $49 million at the end of the quarter, down from $136.4 million during the corresponding 2023 quarter, reflected the booking of outstanding supplier invoices relating to previous quarters within the year, which otherwise if normalised would have amounted to $112 million.

Net interest expenses, which went up by more than $165 million over the period, was accompanied by increased depreciation costs of approximately $137 million and advertising expenses, up $31.4 million.

The company’s LPG operation is cited as being highly capital-intensive, largely due to the nature of that business owing to its fixed asset requirements which see that segment of the business constantly expanding capacity to add more cylinders, plant and storage. The expansion of its marketing and advertising expenditure, which further weighed on the area, stems from the petroleum products company also having to build brand awareness around the cooking gas or Fesgas-branded LPG products.

“The increase in interest expense, depreciation and advertising, in the main, is reflective of and is attributable to our medium- to long-term vision to expand our network footprint, our expansion into LPG distribution, and to increase brand awareness for both Fesco and Fesgas,” the directors said in a report to shareholders accompanying its latest release of the company’s unaudited numbers.

Having entered the local cooking gas market since April of last year Fesco, which now controls about 2.5 per cent of the $25-billion-dollar LPG market, has been taking serious steps to compete with larger players IGL, Gas Pro, Petcom and other smaller entities.

Commenting on its other expenses which included security, insurance, staff cost and some other one-off charges, the company said these were also in line with its expanded operations and growing asset base.

Staff costs for the year, which grew to $270.7 million, was $155.1 million more than that last year, reflecting the expansion of its staff complement (up from 68 to 131), also consistent with the expanded operations.

“In summary, staff costs, bank charges, advertising and asset-based expenses including but not limited to depreciation, insurance, and security – continue to be our main expense items. The company’s expense profile is changing and will reflect its expanded and evolving scope of operations,” the directors noted as they further indicated that the company’s current expenditure and revenue targets were in line with internal forecasts, also representing a mix of established and early stage business expenses which included but were not limited to business and property acquisitions as well as a number of development and integration costs.

Notwithstanding the shortfalls, the junior market-listed company, which delivered increased revenues of $28.7 billion and a sevenfold increase of $2.2 billion in shareholders’ equity since 2021, continues to maintain a steady growth momentum as it strengthens operations across various segments of the business.

Following the April opening of its dealer-owned, company-operated (DOCO) Fesco Hayes outlet, service stations under the Fesco brand now track at 23. More bullish on plans to develop its company-owned, company-operated (COOO) Fesco Oval along Spanish Town Road by the second quarter of 2025, the Jeremy Barnes-led company said it recently received approval from the relevant authorities to construct the state-of-the-art complex from which it wants to increase its retail presence within the Kingston and St Andrew (KSA) region.

“We are in growth mode, and during the year ended March 2024 we have made significant investments that do not yet reflect in sales or profit but will spur the company’s future growth and profitability in the medium term. Further, the company will continue to make investments in real assets and equipment to support expanding its service station businesses and network as well as its industrial client base and LPG business,” the report stated.