Okomu Oil Palm: Expect outstanding result for third straight year

Okomu Oil Palm Plc, the oil palm and rubber producing company, can be expected to announce one of the outstanding earnings results for the 2022 financial year in the approaching earnings reporting season.

The second half (Q2) is not the critical earnings period for the company but despite its comparative leanness, the company may top up its closing third quarter (Q3) profit of N18 billion to the region of N20 billion for the full year.

With the Q3 profit figure, Okomu Oil has already beaten its full-year profit of N14 billion in 2021 by N4 billion.

The Q3 interim earnings report of the company at the end of September 2022 shows a sustained outstanding profit improvement for the third straight year.

The company grew the bottom line by 44 percent to N7.7 billion in 2020, 80 percent to N14 billion in 2021 and has already exceeded the preceding year’s closing profit by 29 percent at the end of Q3 last September.

The first half (Q1) of the company’s 2022 financial year accounts for much of the profit at the end of Q3 — as much as close to N17 billion. This is partly in line with the company’s earnings pattern due to off season effect but largely due to rapid increase in cost of sales it experienced in the later part of last year.

Input cost took a high jump in Q3, which consumed revenue and caused a profit drop in the quarter. At N4.7 billion for Q3, cost of sales rose nearly four times quarter-on-quarter.

Over the same period, sales revenue grew by 27 percent to N9.4 billion. The incursion of input cost slashed margins all the way to the bottom line. Gross profit went down by over 24 percent to N4.7 billion in Q3.

Operating profit dropped by close to 42 percent quarter-on-quarter to N1.3 billion and after-tax profit closed 41 percent down to N1.2 billion over the same period.

The company’s strong performance at half year provides the shock absorber that took the pressure from rising cost off the bottom line for the nine-month reading. The pressure from cost is expected to have sustained in the final quarter and the quarter-on-quarter profit decline can be expected for the company at full year.

Okomu Oil Palm showed an outstanding sales revenue growth at 61.6 percent to over N50 billion at the end of Q3. With that, the company had already exceeded the closing sales revenue figure of N37.5 billion for the 2021 financial year at the end of September 2022.

The rising cost of sales is the company’s main challenge for the year. Input cost rose more than four and half times to N14.4 billion at the end of the Q3. The figure was already ahead of the closing cost of sales figure of N11.6 billion in 2021 by the end of the third quarter.

The major incursion of input cost on sales revenue prevented converting much of the revenue gains into profit. Gross profit improved by 28 percent to N35.8 billion at the end of September 2022, compared to the 61.6 percent expansion of sales.

Some cost saving measures on the part of management yielded a drop of about 18 percent in net operating expenses, which closed at N10.7 billion at the end of the Q3. This helped to dilute the incursion of cost of sales on the earnings.

The cost saving from net operating expenses boosted operating profit, which advanced by 68.7 percent to over N25 billion at the end of Q3.

A less severe challenge for the company is an upshot in cost of finance from N111 million in the same period in 2021 to roughly N537 million at the end of Q3 2022.

Net finance expenses rose from N57 million to about N482 million over the period. The increase had a limited impact on profit due to its relatively low level.

Okomu Oil recorded a profit leap of 55.6 percent to N18 billion at the end of the third quarter. That places the company in good stead even in the event of a final quarter disappointment.