• Monday, June 24, 2024
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Okomu Oil plc: Reaping gains of consistent investment in Nigeria’s agribusiness value chain

Hoodlums attack Okomu Oil, kill 3, injure 4

There is hardly a shortage of stories on companies on the receiving end of Nigeria’s stuttering economic growth, more often than not, success stories of others who have weathered the storm manage to slip away.

One of such success stories is that of Edo-state-based, Okomu Oil plc, with principal activities in oil palm plantation, palm kernel processing, and development of rubber plantation

Despite myriad of opportunities in Nigeria’s agribusiness value chain, few players have managed to survive the stifling challenges. With a market capitalization of N72.97billion, and double-digit growth year-to-date, Okomu’s recent showings further reiterates the saying that fortune favors the bold.

Glimpse into Nigeria’s Oil palm industry

Before the advent of crude-oil, agriculture accounted for more than three-quarters of Nigeria’s export income and almost half of its GDP. In the early 1960s, Nigeria was the world’s largest palm oil producer with a global market share of 43percent.

According to the United States Department of Agriculture (USDA), Nigeria is the 5th largest producer crude palm oil (CPO) with less than 2percent of total global market production of 74.08 million MT, in 1966 Malaysia and Indonesia surpassed Nigeria as the world’s largest palm oil producer. Since then, both countries combined produce approximately 80% of total global output, with Indonesia alone responsible for over half i.e. 53.3% of global output.

The years of underinvestment have seen industry production decline to a point where the country is now a net importer of the commodity. Nigeria’s palm oil output is estimated at 900,000-1.3 million MT, experts say. Import is estimated at over N500 billion annually. With national demand of 2.1 million MT, the supply gap is around 800,000MT.

Meanwhile, Nigeria’s food manufacturing and household product industries, both of which are heavy users of the product have expanded greatly, creating significant opportunities for importers. Foods like noodles, vegetable oil, biscuits, chips, margarines, shortenings, cereals, baked stuff, washing detergents, and even cosmetics are made from palm oil.

 

 

The Nigerian palm oil industry is very fragmented and dominated by numerous small-scale farm holders, which account for over 80percent of local production, while established plantations account for less than 20percent of the total market.

However, the two largest producers – Okomu and Presco – individually hold a sizeable market share, in terms of value – due to their combined capacity – compared to small-scale farmers. Local farmers produce roughly 80percent of the total production, while using approximately 1.6 million hectares of land. The dominance of small farm holders in the palm oil market has resulted in low output compared to the country’s production potential.

This is because local farmers’ manual harvesting techniques are outdated, which often results in significant wastages during the harvesting process. In Nigeria, lack of investment in palm oil extraction technology and technical incompetence/inadequate training have resulted in poor management of palm oil plantations over the years, causing some of them to cease operations.

Despite this, there has been renewed interest in Nigeria’s palm oil market with the entrant of major food manufacturers via backward integration strategies into the upstream and midstream segments.

For instance, in 2018, PZ Wilmar, a joint venture between PZ Cussons International UK and Wilmar International Ltd Singapore invested over $650 million in palm oil plantations and processing facilities.

The company also planted almost 26,500 hectares of palm oil in Cross river state and installed a 65-ton per hour palm oil mill, which translates to estimated annual capacity of ~40,000 tons.

Also, in 2019, Dufil Prima, manufacturers of Indomie noodles and

Power oil, finalized acquisition of 17,954 hectares of land in Edo State and a 1,040-hectare palm oil farm in Abia State.

According to the Central Bank of Nigeria (CBN), if Nigeria had maintained its market dominance in the palm oil industry, the country would have been earning approximately $20 billion annually from cultivation and processing of palm oil as at today.

To meet the supply gap of palm oil, the country had to depend on importation over the years. However, in 2015, the CBN published a list of 41 items, including palm oil, as ineligible for forex through the Nigerian interbank market to encourage local production and manage foreign reserves.

Also, a duty charge of 35% was applied to crude palm oil (CPO). While this seems good in the government’s effort at promoting local production of Crude palm oil, the closure of the land borders has largely supported local producers especially in the light of relatively high CPO prices.

Recent result buoyed by favorable operating environment

Okomu and other oil palm makers benefited from the blacklisting of some 41 items including oil palm by the Central Bank of Nigeria in 2016 when dollar shortage fostered local demand of the agro-product.

The gains recorded following the blacklist of CPO importers from the import-export window were short-lived as local oil palm producers were faced with fresh challenges – robust dollar reserves following improvements in crude oil prices, and smuggling activities across Nigeria’s porous borders.

As a result of this, Okomu Oil Palm plc witnessed a 42.5 percent decline in sales to N4.22 billion in the first quarter of 2019 from N7.34 billion, the trend was extended to the second quarter of the year with a 22.4 percent slump in revenue to N4.34 billion from N5.59 billion.

“In the first two quarters, we have a lot of problems in having to sell our products locally,” Graham Hefer, managing director of Okomu Oil Palm, said while reacting to Q2 result. These problems, which came as a result of illegal smuggling and imports of products are only related to rice as people may think, but also oil palm as well as other things, he said.

To curb the importation of oil palm, which was aberrantly affecting local producers, President Muhammadu Buhari in June directed CBN to blacklist any firm caught smuggling or dumping palm oil into the country from all banking businesses as well as the foreign exchange market. This pronouncement was followed up with a partial – and later graduated to complete – border closure in August and this rekindled local demands.

This led to local sales surging 89 percent to N5.95 billion in the third quarter from N3.14 billion a year earlier, while sales generated by exporting its products to other countries rose to N1.02 billion in the review period as against N598 million realized in the same period last year.

In its recently released halfyear 2020 result for the period ended 30th June and despite challenges posed by coronavirus pandemic, Okomu posted a decent performance with profit surging 58.73percent to N4.00billion in H1 2020 from N2.52 billion posted by the firm during the corresponding period of 2019, with a turnover of

N13.527 billion, a 57.94percent surge when compared with the same period in 2019 at N8.56billion.

The company’s cost of sales reduced slightly in H1 2020 to N1.08billion from N1.69billion. Specifically, the market cost for oil palm stood at N996.342 million as against N1.405 million in 2019, while that of Rubber stood at N86.63million from N286.5million in corresponding period in 2019. Finance cost stood at N310.6million from N101.1million in first six months of 2019.

The company’s operating expense increased 67.44percent year on year from N3.962 billion in H12019 to N6.634 billion H12020.

Okomu’s fixed asset surged to N33.606 billion as at June from their aggregate valuation at N32.124 billion in December last year, and that of current assets standing at N15.885 billion relative to N11.472 billion in December last year; the company’s net assets value is put at N31.279 billion compared to N29.180 billion.

Okomu is majorly owned by SOCFINAF SA, a Belgian company with 62.69% controlling stake in the company’s 953.9 million ordinary shares. No Other shareholder owns more than 5percent of the company. SOCFINAF also owns several oil palm plantations across Africa especially in countries like Ivory Coast, Cameroon, Congo, Ghana, Liberia, and Sierra Leone.

It also has business interest in Indonesia and in Europe. To export rubber Okomu Oil relies heavily on its related company, SOGESCOL FR SA. It sells all of its rubber to SOGESCOL FR SA who then goes on to sell to buyers in the world market.

Meanwhile, the company recently told the investing public that it has intensified steps to improve collaborative arrangement with the Edo State Government in the agriculture industry through a partnership with local communities and indigenous farmers to boost job creation and enhance modern agricultural technique for an increase in production.

According to the release, the oil palm maker said it planned to cultivate 5,000 hectares for its oil palm production in the state with a determination to creating a more sustainable oil palm growth and practice.

Okomu Oil’s stock has recorded impressive returns to its investors, especially in 2020. The share price traded at N80.00 on Friday its 52 weeks high. A final dividend of N2 per 50 kobo share was recently approved for its audited financial result for the period that ended December 31, 2019. Its share price has gained more than 200 percent in the last 5 years and seems not slowing down on capital gains.