Nigeria’s biggest palm oil producer, Okomu oil palm reported a growth in profit in the first nine months of the year as revenues hit the highest in 8 years.
The palm oil maker saw revenue surge by 20 percent to a record high of N18.6 billion in the period compared to N15.5 billion a year ago. Okomu’s share price remained flat at N80 per share at close of market Friday.
The leading agricultural firm grew profit by 19.5 percent to N4.9 billion in the first nine months of the year compared to N4.1 billion recorded in the same period of 2019.
Okomu’s sales cost declined by 4 percent to N2.1 billion in 9M’20 against N2.2 billion a year ago.
The result of reduced sales cost and revenue surge grew gross profit by 23.3 percent to N16.4 billion in 9M’20 compared to N13.3 billion in the same period last year.
Earnings per share rose to N5.24 in 9M’20 from N4.31 in the first nine months of 2020.
Net operating expenses jumped to N9.2 billion, some 24.4 percent from N7.39 billion in the same period last year.
The company increased borrowing cost by 109 percent to N450 million compared to N215 million in the first 9 months of 2019.
The increase in revenue could not however prevent the weak performance in Q3’20 as lower sales and higher borrowing cost weakened earnings.
Weak Q3 performance
Okomu oil palm did not fare so well in Q3’20 as revenue and profit plunged significantly.
Profit slumped 37 percent to N991 million in Q3’20 from the N1.58 billion in raked in the same period last year as local and export sales declined.
Local sales and Export sales fell 28.8 percent and 15 percent to N4.2 billion and N806 million respectively.
“Rainfall patterns have not been favourable for farming activities in Q3. Covid-19 restrictions in Q2 also limited farming activities therefore yields are lesser than the previous year” said Ayorinde Akinloye, a research analyst at CSL Stockbroker.
Revenue also followed in the same direction as it plunged 27.4 percent to N5.0 billion from N6.9 billion in Q3’19.
Analysts at CardinalStone noted that the positive deviation of Q3’19 revenue from typical seasonality may have provided a high base that resulted in the current revenue contraction.
Revenue grew 105 percent to N6.97 billion in Q3’20 compared to N3.4 billion in Q3’18.
Despite the decline in sales, cost of sales jumped to N1.07 billion in Q3’20, some 105 percent higher than a year ago when it posted N523 million.
Cost of selling oil palm rose 102 percent to N924 million from N457 million while sales cost for rubber surged 127 percent to N150 million from N66 million in the previous year.
Gross profit also fell 37.5 percent to N4.0 billion from N6.4 billion posted in Q3’19.
Borrowing cost rose by 18.4 percent to N139 million from N113 million in the same period last year.
Finance income also plunged 98 percent to N5 million from N356 million un Q3’19.
According to analysts at CardinalStone, net finance cost surged 22.6 percent due to higher interest payment on long term loans and lower interest income. The lower interest rate is reflective of the lower yield environment.
The interest paid on long term loans rose 55 percent to N134 million in Q3’20 from N86 million in the same period last year.
Earnings per share fell to N1.04 in Q3’20 from N1.66 a year ago.
Despite a 422 percent decline in effective tax rate to N322 million, Okomu was unable to offset weaknesses anywhere in their financials.
Covid-19 Impact
The company was able to withstand the headwinds of the pandemic in Q1’20 and Q2’20 but performance declined significantly in Q3’20.
Okomu’s net profit fell 2.4 percent in Q2’20 to N1.97 billion from N2.02 billion in Q1’20. Revenue also dropped 6 percent to N6.54 billion in Q2’20 from N6.98 billion in Q1’20.
However, in Q3’20 profit fell 50 percent to 991 million and revenue dropped 22 percent to N5.09 billion.
“The downturn in the economy has affected successful companies like Okomu” said Muda Yusuf, Director General Lagos Chamber of Commerce and Industry (LCCI).
“Purchasing power has dropped, poverty and unemployment is also on the increase. These factors have affected demand and this is also reflecting in the profitability of companies like Okomu” Yusuf said.
