Here are what to learn from Presco’s profit run

In 2024, Presco grew its revenue by 93 percent. Over the past five years, the company has grown its income almost nine times, moving from N23.9 billion as of FYE 2020 to N198.2 billion at the end of 2024.

Five years ago, Presco stood shoulder to shoulder with its closest competitor, Okomu Oil Palm. In 2020, Presco reported a revenue of N23.9 billion and a net profit of N5.3 billion, while Okomu Oil Palm posted N23.4 billion in revenue and N2.9 billion in net profit.

However, from 2021 to 2024, the financial gap between the two has steadily widened—not due to Okomu’s underperformance, but because Presco is giving the country a masterclass on how to stay consistently profitable.

Presco is a leading Nigerian oil palm company that manages over 26,000 hectares of plantations across Edo and Delta states—a land area ten times larger than the Dangote Refinery complex. It was originally owned by the Bendel State Government, then the Belgian-owned SIAT Group took over.

Since 2024, it is now owned by Saroafrica International. Just like every other business, Presco has not been immune from Nigeria’s challenging macroeconomic landscape. However, a review of the company’s financials since 2020 tells a story of an investor defying the challenges to stay afloat.

Based on a review by BusinessDay, these are three things Presco is doing to maintain profitability.

Make yearly capital investments

At first glance, one might attribute this stellar performance to global palm oil prices. The commodity hit a record $1,700 per tonne in 2022, before sliding to $780 per tonne by late 2023.

However, given that Nigeria remains a net importer—producing just 1.5 million tonnes annually against a demand of nearly 3 million tonnes—export revenues aren’t the primary growth engine for Presco.

Instead, the secret lies in strategic capital investments. Between 2020 and 2024 alone, Presco invested N105.2 billion in capital expenditure, with N67.5 billion spent in 2024 alone.

The company’s 2024 capital expenditure was spent majorly on the acquisition of a majority stake in Ghana Oil Palm Development Company.

With an average Return on Invested Capital (ROIC) of 20 percent between 2020 and 2024, Presco is a poster child of efficient spending. These strategic investments have seen Presco’s total assets grow more than five times, moving from N73.8 billion as of 2020-end to N422 billion at the end of 2024.

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Optimise operational expenses ratio

Operating Expenses Ratio (OER) measures the proportion of revenue consumed by operating expenses. It is essentially a measure of how a company manages its day-to-day costs relative to income. In the agricultural and palm oil processing industry, the optimal operational expenses ratio is usually within 20 to 30 percent.

In Presco’s case, the company’s OER hovered between 30 percent and 22 percent between 2020 and 2023, then it hit a new low of 18 percent in 2024.

Lowering its OER suggests that the company has become more efficient in managing its costs, with more of its earnings retained as profits. To stay profitable, it is advisable for a company to optimise its operating expenses ratio within its industry’s benchmark.

Reduced FX exposure

Another key strategic advantage for Presco is its minimal exposure to foreign exchange (FX) risks. While many companies have grappled with the sharp volatilities of the Naira’s exchange rate, Presco has effectively insulated itself from currency fluctuations by avoiding FX-denominated loans and foreign currency obligations.

This deliberate approach has shielded the company from the financial strain of currency devaluation over the past years.

2020-2024: Golden Years

Between 2020 and 2024, Presco developed a trend of almost doubling its revenue every year. From N23.9 billion in 2020 to N47.4 billion in 2021, N81 billion in 2022, N102.4 billion in 2023, and N198.2 billion in 2024.

However, it’s not just the topline figures that make Presco stand out—it’s the sheer profitability behind them. Over this five-year period, the company posted an average gross profit margin of 66 percent, while its average net margin hovered around 41 percent —far ahead of industry peers like Okomu Oil Palm and Okitipupa Oil Palm, which recorded average net profit margins of 25 percent and 28 percent, respectively during the same period.

A significant metric for estimating profitability, Return on Equity has seen Presco generate value from its net assets. From a respectable 18 percent in 2020, Presco’s RoE skyrocketed to a country-leading 91 percent by the end of 2024. While Okomu Oil also saw strong gains, moving from 10 percent to 71 percent, Presco’s performance remains unmatched.

When it comes to Return on Assets (RoA)—a measure of how well a company squeezes value from its resources—Presco once again leads the pack. Its RoA soared from 7 percent in 2020 to 35 percent in 2024.

While the metrics are great, it begets the question, what is driving Presco’s impressive run?