Okomu Oil Palm: Reaping the rewards of internal dependence

Okomu Oil Palm is set to show the difference that internal dependence on production inputs can make in company operations when the nation’s capacity to import goes down. The oil palm products and rubber company is one of the few corporate organisations from which good news on earnings is expected as the earnings report season approaches.

The company is expected to sustain recovery for the second year after revenue and profit dropped for three years running to 2014. Its third quarter report shows strong growths in revenue and profit that are promising to lift its 2016 earnings figures considerably.

Growing revenue is reinforced by general cost moderation and a major gain in profit margin has lifted profit capacity. The company doubled profit in 2015 and looks likely to get close to doubling profit again from the 2016 trading.

Companies dependent on imported raw materials were badly hit by foreign exchange crisis in 2016, which swelled cost of sales and slashed profit margins. Okomu Oil Palm’s internally dependent operation shielded it from the exchange rate troubles, giving it an operating stability that most company lacked in the year.

While most company directors are presently working to sugarcoat bad earning reports due for release in the next two months, Okomu Oil Palm can be expected to show the strongest earnings performance since 2012. At the end of the third quarter, it had already overshot its preceding year’s turnover and net profit stood a clear 59% above the 2015 full year figure. How a strong growth in sales revenue and moderate cost increases lifted profit margin will expectedly be the summary of the company’s earnings report for 2016.

The company earned N10.91 billion in sales revenue at the end of the third quarter in September, an increase of about 41% year-on-year. The full year turnover is estimated at N13.64 billion for Okomu Oil Palm in 2016, a mark up from the earlier projection of N11.62 billion. This will be a top growth record of 40% over the 2015 turnover figure of N9.74 billion, establishing a new high in sales revenue ahead of the peak earnings figure of N11.12 billion in 2011. The company grew sales revenue by 12.5% in 2015, the first revenue growth since 2012 and an accelerated growth is expected to follow in 2016.

Sales revenue had declined consistently from the 2011 record to a four-year low of N8.65 billion in 2014. The company’s export revenue from rubber declined by 7% to N1.43 billion at the end of the third quarter. It generated a little under N2.0 billion in export revenue from rubber exports in the 2015 full year.

After tax profit amounted to N4.18 billion at the end of the third quarter, a top record growth of 89.4% year-on-year. This indicates another outstanding growth in profit for the company after it virtually doubled net profit from N1.33 billion in 2014 to N2.63 billion in 2015.

Full year estimate indicates after tax profit in the region of N5.22 billion for Okomu Oil Palm at the end of 2016, an upward revision from the earlier projection of N4.3 billion. This means after tax profit is expected to nearly double in 2016 from the 2015 figure of N2.63 billion. This will be the biggest profit figure for the company in three years and yet well below the company’s peak profit figure of N10.52 billion in 2011 – which actually was a windfall from changes in fair value of non-current biological assets.

Profit capacity is significantly improved with a big gain in profit margin from 27% at the end of last year to 38.3% at the end of the third quarter. This is one of the highest profit margins seen from companies across sectors and industries listed on the Nigerian Stock Exchange in 2016. The company’s operating advantage is its dependence on local raw materials with little dollar content in its normal operations.

The increase in sales revenue in the third quarter was achieved at a marginal increase of 2.6% in cost of sales. That raised gross profit ahead of sales at 48% and improved gross profit margin from 84.2% to 88.5% over the review period. An all-round moderation of costs lifted operating profit by 86% to N5.54 billion.

The company earned N4.38 per share at the end of the third quarter, up from N2.31 in the same period in the preceding year. Full year outlook indicates earnings per share in the region of N5.47 for Okomu Oil Palm in 2016. That will be close to doubling the N2.76 it earned in 2015.