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Further slowdown in Q3 dashes Presco’s N28b profit hopes for 2022

Further slowdown in Q3 dashes Presco’s N28b profit hopes for 2022
January 02
08:04 2023

Presco’s hopes for roughly N28 billion after tax profit for the 2022 full year has faded with a sustained slowdown in the third quarter in which its profit sank by 34 percent quarter-on-quarter.

The oil palm and rubber-producing company realised N2.4 billion profit in the third quarter, down from N3.65 billion in the same quarter in 2021. That tops its N13.5 billion profit at half a year to N15.9 billion at the end of the third quarter.

The company had expected to generate over N14 billion profit in the second half, according to forecast. However, its third quarter interim report shows that cost of sales multiplied during the quarter from N3.3 billion to over N9 billion.

The high rise in input cost consumed more than an increase of N4.7 billion in sales revenue quarter-on-quarter to N17.5 billion and lowered gross profit by 11 percent to N8.4 billion for the quarter.


A big slash of 49 percent in administrative expenses to N2.4 billion worked to prop up operating profit to N5.6 billion in the quarter but an upsurge in finance expenses to over N2 billion for the quarter led to the drop in after tax profit in the third quarter.

Presco is however on target on revenue performance, which was forecast to stand at N70 billion at full year. Based on quarterly average sales revenue of N19.7 billion at the end of the third quarter and notwithstanding a likely slowdown in the final quarter, the full year revenue target may be exceeded.

The company’s management has been able to sustain its revenue growth drive for the second year so far but the surge in cost of sales has undermined the profit target for the year.


Presco’s closing position for the third quarter shows a group turnover of N59.2 billion at the end of September 2022. This is a strong growth of 73 percent year-on-year from the company’s figure of N34.2 billion in the same period in 2021. It is a slowdown however from the increase of 94 percent at half year.

Despite the slowdown, Presco is not farfetched from hitting its sales revenue target of N70 billion at full year.

The cost increases in the third quarter reinforced the pressure recorded in the second quarter, which weakened further the company’s ability to convert revenue into profit. Cost of sales jumped from about N11 billion at half year to N20.6 billion at the end of the third quarter, representing 149 percent rise year-on-year.

Input cost encroached further on turnover from 27.5 percent at half year and from 24 percent in the previous year to 34.7 percent at the end of the third quarter.


As expected in the half year performance review, the increased incursion of cost of sales has slowed down gross profit. At N38.6 billion at the end of September 2022, gross profit has decelerated sharply from 83 percent growth at half year to 48.7 percent. The third quarter added only N8.4 billion to the N30 billion gross profit figure earned at half year.

The company’s management did cut down administrative expenses in the third quarter but not as rapidly as it had expected. At N10.7 billion at the end of September 2022, administrative cost grew by 40 percent year-on-year, breaking the high speed growth of over 187 percent in administrative expenses at half year.

Part of the cost saving from administrative cost was claimed by unexpected jump of close to five times in selling and distribution cost in the third quarter to N692 million. That accounted for 56 percent of the nine-month selling and distribution cost of N1.2 billion. The result is a slowdown in operating profit, which improved from N21.7 billion at half to N27.3 billion at the end of the third quarter.

Cost saving hopes from finance expenses failed completely, as it multiplied instead of a drop. At almost N6 billion at the end of the third quarter, finance cost has multiplied about 11 times from N546 million in the same period in 2021, already well ahead of the N4.6 billion the company forecast for the full year.


The upsurge in the cost of finance reflects the company’s sustaining rise in balance sheet borrowings from N56.7 billion at the end of last year to N67 billion at the end of the third quarter.

Profit margin is down from 40.2 percent in the same period in 2021 to 26.8 percent at the end of the third quarter in September 2022.



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