Okomu Oil, Presco’s liquid assets drop 56% amid boost in profits

Okomu Oil Palm Company Plc and Presco Plc, the biggest palm oil producers in Nigeria, recorded a decline of 56.1 percent in their cash and cash equivalent balance for 2023.

The companies’ latest unaudited financial statements show that they reported a combined cash and cash equivalents of N6.0 billion last year, down from N13.7 billion in 2022.

The companies however saw their profits rise by 70 percent to N51.6 billion from N30.4 billion.

Cash equivalents are investment securities that are meant for short-term investing; they have high credit quality and are highly liquid.

“I believe different items resulted in that decline in cash and cash equivalent. Also, looking at the fact that most of their cash and cash equivalent was held in cash instead of at the bank, unlike in 2022,” said a Lagos-based analyst who declined to be identified.

He said looking at the cash flow statement of both companies, they had a significant rise in their tax paid in the period.

“I think it was basically due to cash from their working capital and other items in their statement of cash flow, but hopefully, we will get a full picture of it when they drop their audited statements,” he added.

Sesan Adeyeye, a Lagos-based financial analyst, said the lack of a sufficient buffer in Presco’s opening balance to absorb the net cash flow during the period led to a decline.

Nigeria’s manufacturing sector has been plagued by rising operating costs on the back of foreign exchange illiquidity, high-interest rates, and weak infrastructural amenities.

With manufacturers battling increased costs of doing business and declining profitability, Okomu and Presco’s prosperity has been described as impressive, causing them to maintain their positions as stalwarts in the palm oil production value chain.

“We live in a time when demand for palm oil is rising astronomically,” Alphonsus Inyang, president of the National Palm Produce Association of Nigeria, said.

“The reason these two companies, and maybe some others, continue to rake in so much money is because of the growing demand for palm oil (crude, special, technical, and their derivatives). There are so many uses for palm oil that have been discovered over the years,” he said.

He added that the national and subnational governments are not doing anything about investing in the development of new palm estates or supporting smallholders to produce more so that the millers can aggregate and mill them, whereas palm oil sells the highest in Nigeria.

According to data from the Malaysian Palm Oil Council (MPOC), the country’s imports of Malaysian Palm Oil surged by 34 percent in 2023, despite the devaluation of the naira and increased local production of the crop

The country imported 304,043 metric tons (MT) of palm oil from Malaysia last year, from 227,035 MT in 2022, indicating a 77,008 MT increase.

In 2021, the country imported 309,911 MT of palm oil from Malaysia.

“The major factors that drive palm oil usage in Nigeria are the level of customer demand provided by the growing Nigerian population and the international price of crude palm oil,” MPOC said.

Palm oil production in Africa’s biggest economy grew by nine percent from 2020/21 to 1.4 million metric tonnes in 2022, according to the United States Department of Agriculture.

However, local production still fell short of demand, with Nigeria consuming two million metric tonnes in 2021, leaving a deficit of 600,000 metric tonnes.

This indicates that while local production has increased, it has not kept pace with the country’s growing demand for palm oil.

In the face of years of stagnant output growth and growing local demand, Nigeria’s production deficit has widened considerably, and on average, over the last five years, around 25 percent of yearly domestic palm oil consumed in the country was imported.

“A decline in the international price of crude palm oil always leads to increased imports of palm oil, as well as smuggling from neighbouring West African countries,” MPOC said in one of its reports.