Okomu Oil Palm: Expect most impressive result for 2021

The Okomu Oil Palm Company Plc seems set to file one of its most impressive earning reports in many years from the 2021 operations.

Despite a likely slowdown in the final quarter due to off season effect, the company is sure to be counted among the most outstanding corporates on profit advances in the just concluded financial year.

The oil palm and rubber producing company maintained triple digit profit growth all the way from the first quarter, ending the third quarter in September 2021 with an after tax profit of N11.6 billion.

The company exceeded its preceding year’s closing profit of N7.8 billion by half year when it posted a net profit of N9.5 billion. The nine-month profit figure stands close to one and half times the closing profit for the company in 2020.

The company earned an after tax profit of N2.3 billion for the third quarter – which represents a quarter-on-quarter growth of 109 percent. It grew after tax profit by 133 percent in the first quarter and 115.5 percent quarter-on-quarter in the second quarter.

Improved sales revenue and moderated costs enabled substantial gain in margins. Profit margin improved continually from 19.5 percent in the same period last year to 28 percent in the third quarter. The year-on-year reading shows an improvement in net profit margin from 26.8 percent to 37.3 percent over the review period.

Okomu Oil Palm is expected to rebuild profit for the second year in 2021 after its profit dropped from over N9 billion in 2017 to N5.4 billion in 2019. It began a rebound in 2020, which accelerated to exceptional growth in 2021.

The company’s elevated performance in the year hinges on its major operating advantage: low input cost.  Cost of sales amounts to 10 percent of sales revenue – one of the lowest input cost ratios in record in Nigeria’s industrial space.

The low cost profile explains the company’s comparatively high profit margin. The advantage lies in its dependence of local raw materials, which minimises the effects of exchange rate volatility on operations.

Cost of sales amounted to roughly N3 billion at the end of the third quarter operations. This means that the company spent an average of 10 kobo to produce the naira of sales revenue.

Okomu Oil Palm therefore boosts one of the highest value added and profit margins across sectors and industries in the Nigeria’s business space.

The strength for the exceptional performance stems largely from strong growth in sales revenue in the year. Turnover grew by 66.7 percent year-on-year to over N31 billion at the end of the third quarter. This has beaten by far the N23 billion sales revenue the company posted in the entire 2020 financial year.

Leading sales revenue growth are export sales, which grew by 112 percent year-on-year to over N4 billion at the end of the third quarter. Domestic sales amounted to about N27 billion, representing 86.5 percent of the company’s revenue at the end of September 2021.

Revenue growth slowed down in the third quarter due to seasonal effects on raw materials supplies and production. The critical earning season for the company lies in the first half, indicating a further slowdown in revenue and profit growth margins for the company in the final quarter.

The big advantage for the company is its ability to combine rapidly growing sales revenue with moderated costs. The relatively low cost of sales permitted a robust growth of over 69 percent in gross profit to almost N28 billion at the end of September 2021.

Net operating expenses moderated at an increase of 41 percent year-on-year at the end of the period to close at N13 billion. The result is that operating profit more than doubled at 105 percent year-on-year to nearly N15 billion at the end of the third quarter.

Further supporting the favourable cost behaviour are finance expenses, which maintained a declining trend with a drop of 75 percent year-on-year to N111 million at the end of the third quarter.

The company’s after tax profit of N11.6 billion at the end of the third quarter represents a 132 percent advance year-on-year over the N5 billion profit figure it posted in the same period in 2020.