TheCable

Presco Plc, the oil palm producing company, has maintained a strong earnings growth on which it started the current financial year. The company is keeping revenue growing and also stretching out profit margin. This has lifted profit margin and set profit on the path of another strong growth this year. At the end of the third quarter, after tax profit was already standing 35% above the full year figure in 2014.

The company is maintaining the same earnings pattern it followed last year that enabled it to nearly double profit in 2014. It has lowered the cost-income ratio further and with that it grew profit more than three and half times as fast as sales revenue at the end of the third quarter. The company deals on products that it cannot meet local demand and the restriction of importation of palm oil under the Central Bank’s measure to defend the naira seems to have favoured local operators.

Sales revenue growth has been weak for the company since 2013 when there was a sharp fall of close to 25%. A moderate growth of 7.7% was recorded in 2014, while an accelerated growth is expected in 2015.

Third quarter operations closed with a turnover of N8.04 billion, which is a year-on-year growth of 16.2%. The full year outlook indicates sales revenue in the region of N10.4 billion for Presco at the end of 2015. That will be an increase of 14% over the full year sales revenue in 2014. The company is yet to match its peak sales revenue of N11.25 billion it posted in 2012.

The revenue projection is subject to a wide variation from actual due to the uneven quarterly earnings pattern of the company. Its critical earning season is the first half of the year and the peak period is the second quarter. A slowdown in sales revenue is therefore likely in the final quarter.

The company posted an after tax profit of N3.52 billion at the end of the third quarter, an increase of 58.9% year-on-year. Full year projection indicates an after tax profit in the region of N4.85 billion for Presco at the end of 2015. This will be an advance of 86.5% from the net profit figure of N2.61 billion the company recorded in 2014. The profit forecast is subject to a wide variation from the actual due to the uneven earnings pattern of the company across quarters.

A major favourable development on the company’s income statement during the review period is a drop of 16.6% in cost of sales against the increase of 16.2% in sales revenue. This enabled the company to lift gross profit margin from 42.2% in the same period last year to 58.5% at the end of the third quarter. Gross profit therefore rose by 61% to N4.71 billion at the end of September. Net profit margin widened from 32% to 44% over the review period.

Another favourable development during the period is a gain of N2.23 billion in biological assets, which is an increase of 36.3% over the same period last year. On the other hand, selling/administrative expenses rose ahead of sales revenue at 20.3% and claimed an increased share of sales revenue. Again, other operating income dropped by over 22% during the period in spite of which the company achieved a leap of 62% in operating profit to N5.41 billion.

A major event in the company’s income statement in the third quarter is a rise of over 73% in interest charges. This means the company is devoting a significantly increased share of revenue to payment of finance charges and this is hurting the cash flow position. Balance sheet borrowings have expanded this year, as cash flow difficulties have necessitated increased dependence on debts. There is an upsurge of 345% in short-term borrowings and an increase of 19.4% in long-term financial liabilities.

Net cash flow from operating activities dropped by 69% during the review period and provided only a small fraction of total cash requirements for investing and financing activities. A fresh loan of N3.32 billion was therefore raised during the period from which repayment of previous loan had to be made and dividend paid. A rise of 71% in interest paid, a growth of 43% in trade and other receivables and a drop of 30% in trade and other payables during the period largely account for the cash flow pressure facing the company.

The company earned N3.45 per share at the end of the third quarter, up from N2.22 in the same period last year. Full year earnings per share is projected at N4.85 for Presco in 2015, an expected rise from N2.68 in 2014. The company paid a cash dividend of N1.0 per share at the end of its 2014 operations.