Presco expects lean Q4 profit amid sales revenue drop projection

Presco Plc expects quite a lean final quarter for its 2023 operations to be marked by a drop in sales revenue and a minor contribution to profit.

The full-year forecast of the oil palm and rubber-producing company shows that it expects sales revenue for the final quarter to drop from N28.8 billion for the third quarter (Q3) and from about N22 billion in the same quarter in 2022 to N17.7 billion.

The company’s management also expects that after-tax for the quarter would fall from N8.4 billion for Q3 to N1 billion to inch up the closing third-quarter (Q3) profit of N23.5 billion to N24.5 billion at full-year.

The lean fourth quarter (Q4) expectation is in line with the company’s off-season earnings pattern when revenue drop usually leads to the least quarterly profit contribution and sometimes even a loss.

Last year, a loss occurred in the final quarter, which lowered the closing third-quarter profit of N15.9 billion to N13 billion at full-year.

The strength in sales revenue growth is the critical factor in how big the company’s profit is. The third quarter profit of N8.4 billion — which is three and half times the corresponding figure of N2.4 billion in the preceding year, was powered by an increase of 64.5 percent in turnover for the quarter.

Production cost for the quarter slowed down at an increase of 29 percent to N11.7 billion while selling and distribution expenses dropped by 40 percent to N418 million for the quarter.

The combination of strong revenue growth and a general slowdown in costs produced a marked growth of 129.4 percent in operating profit to N12.8 billion for Q3.

Presco’s closing position for Q3 ended September 2023, shows a group turnover of N76.9 billion. This is an increase of 29.8 percent year-on-year from the company’s figure of N59.2 billion in the same period in 2022. It is an upswing from the increase of 15.2 percent to N48 billion at half-year.

A final quarter sales revenue of N17.7 billion is expected to hit the full-year forecast of N94.6 billion, which will be an increase of 16.7 percent over the closing turnover of N81 billion the company posted in 2022.

Quarterly sales revenue improved from about N22 billion in the first quarter (Q1) to N26 billion in the second (Q) and further to N28.8 billion in Q3.

The slowdown in production cost in Q3 could not fully dilute the earlier rapid increases, which left input cost growing ahead of revenue at the end of the third quarter.

Cost of sales grew by 35.8 percent to N27.9 billion at the end of Q3, well ahead of the 29.8 percent improvement in sales.

Gross profit grew by 26.7 percent to N48.9 billion at the end of September 2023, a strong upward swing from an increase of 5.5 percent to N31.9 billion at half-year. Gross profit is expected to close at 59.8 billion at full-year.

Administrative cost grew rapidly at 39 percent year-on-year to N14.9 billion at the end of Q3 but selling and distribution expenses dropped by 12.9 percent to N1 billion over the period.

Two favourable developments followed, which are foreign exchange gains of N3.9 billion and an increase of 58.9 percent in other operating income to about N1.3 billion — which helped to power a leap of 38.4 percent in operating profit, amounting to N37.8 billion at the end of Q3.

Finance cost was flat at N6 billion at the end of Q3, which is a change of position from massive increases in the preceding financial year.

The company’s balance sheet borrowings are slightly down from N63.7 billion at the end of 2022 to N59.3 billion at the end of Q3. After-tax profit stood at N23.5 billion at the end of September 2023, which is an increase of 47.8 percent year-on-year.

Profit margin is up from 26.8 percent in the same period in 2022 to 30.5 percent at the end of Q3 in September 2023.