Presco Cost to Income Ratio Worsens for the Fourth Consecutive Year

Presco’s cost to income ratio worsens for the fourth consecutive year since 2016 Q1, the agricultural company in Q1 2020 recorded its highest cost to income ratio of 64.01 percent in 5 years.

Presco since 2016 Q1 has recorded a 460.79 percent growth in operating expenses. Presco’s operating expenses comprise of selling, general, administrative and distribution expense. Selling, general and administrative expenses grew by 199.60 percent moving from N424.49 million in 2016 Q1 to N1.27 billion in 2020 Q1 while distribution expenses grew by 16.91 percent moving from N52.21 million to N60.96 million between 2016Q1 to 2020Q1.

The sporadic growth in the company’s operating expenses, which is much faster than the growth in its gross profit explains the consistent and persistent growth in Presco’s cost to income ratio which has been weighing on the company’s profitability as the agricultural firm has seen net profit decline by 15.91 percent in the past year, 30.69 percent in the past 3 years and grown only 28.67 percent in the past 5 years.

Presco in the past 5 years has recorded a revenue growth of 68.95 percent from N3.18 billion in 2016 Q1 to N5.34 billion in 2020 Q1, while the company’s cost of sales marginally dipped by 0.19 percent from N1. 177 billion to N1.775 which has allowed the company to grow gross profit by 109.60 percent within the period under review.

In 2020 Q1 Presco for the first time in 4 years recoded a decline in gross profit. The company posted a gross profit of N4.19 billion which showed a 4.17 percent decline compared to the N4.38 billion the company posted in 2019 Q1. Though operating expenses also dropped in 2020 Q1, the 0.29 percent decline in operating expenses was quite slower than the 4.17 percent decline in gross profit.

Meanwhile, EUA analysts perceive that Presco might not buck this trend in the coming year as the global pandemic outbreak of COVID-19 in Nigeria which led to total and partial lockdown of states in the country would impact cost negatively.