TheCable

Presco, the oil palm products company, is putting up a defiant earnings performance that underscores the strength in local dependence. In a year of falling value of the naira, rising input cost, profit drops and rising losses, the oil palm products and rubber producing company is moving smoothly on a turnaround cruse. 

The company’s operations for the first half of the 2016 financial year ended with a comfortable growth in revenue, moderate cost increases and a rise of more than one and half times in net profit. Profit is already ahead of last year’s closing figure and a strong recovery can be expected from Presco this year after a major profit drop in 2015.

The company is an agro-industrial establishment with oil palm plantations, palm oil mill, palm kernel crushing plant and vegetable oil refining plant. It specialises in the cultivation of oil palm and in the extraction, refining and fractionation of crude palm oil into finished products. The company’s management identifies its key competence as supplies of speciality fats and oils of outstanding quality to customers’ specification and assurance of a reliability of supply of its products all year round. It said this is made possible by the integrated nature of the company’s production process.

The company grew sales revenue by 60.5% to N7.52 billion at the end of half year trading, which is one of the most healthy revenue growth records in the generally subdued business environment of 2016. The full year outlook indicates turnover in the region of N12.6 billion for Presco in 2016. This will be an increase of about 21% – an accelerated revenue growth for the third year running. That will expectedly raise turnover to a new peak after a drop in 2013.

The company posted an after tax profit of a little over N3 billion at the end of June 2016, a major year-on-year advance of 153%. That has already pushed profit above the full year figure of N2.32 billion the company posted at the end of 2015. Net profit is projected at N5 billion for Presco at the end of 2016. That will be a growth of 115% over the full year profit figure in 2015. The company had lost more than 55% of after tax profit last year and a year of a big turnaround is in the making.

The strength for the impressive profit growth at the end of the second quarter came from all round cost moderation in the face of strong earnings growth. Apart from the high growth in sales revenue, other operating income multiplied nearly seven and half times to N626 million and gain from changes in fair value of biological assets also multiplied by 578% to N658 million. These two developments enabled operating profit to grow by 148% to N5.16 billion.

On the other hand, all the main cost lines of the company moderated during the period, which widened profit margin. Cost of sales grew by 34.4% compared with the increase of 60.5% in sales revenue. That spurred a rise of 80.8% in gross profit, raising gross profit margin from 56.2% in June 2015 to 63.3% in 2016.

Selling/administrative expenses also moderated at an increase of 20.2% and so did distribution cost, which grew by 21.3%. Finance charges declined by 5.6% during the period, as total balance sheet debts declined. Exchange losses represent the only expenditure line that claimed increased proportion of revenue, having shot up by close to 262%.

Presco earned N3.01 kobo per share at half year, rising from N1.19 in the same period in 2015. The full year expectation is N5 per share compared with N2.32 in 2015. The company did not pay any dividends at the end of last year due to the profit drop. The strong recovery in the current year has brightened dividend prospects.