Presco gains speed, heads for biggest profit in years

Presco’s turnaround cruse gained considerable speed in the third quarter – when the oil palm products company earned nearly 56% of the net profit it posted at the end of the period. The windfall came from a gain of N3.75 billion from changes in fair value of biological assets in the third quarter, lifting the cumulative figure to N4.41 billion at the end of September.

With that, the company has already multiplied its closing profit last year close to three times. Based on the performance so far, Presco is headed for the biggest profit figure in several years in 2016. The company is in a year of recovery after a sharp profit drop in 2015, which it has extended to a year of outstanding growth. Revenue growth has also accelerated for the company and the full year earnings outlook is significantly better than earlier projected.

The company’s operations for the nine months of the 2016 financial year continued to show a comfortable growth in revenue, moderate cost increases and a strong gain in profit margin. Sales revenue has remained below the five-year peak of N11.25 attained in 2012 but a new revenue peak appears likely for Presco at the end of 2016.

Presco is an agro-industrial establishment with oil palm plantations, palm oil mill, palm kernel crushing plant and vegetable oil refining plant. It specialises in the cultivation of oil palm and in the extraction, refining and fractionation of crude palm oil into finished products. It supplies speciality fats and oils to customers’ specification. The company has an integrated production process, which enables it to ensure reliability of products supplies to customers all year round.

The company grew sales revenue by 48.4% to N11.94 billion at the end of the third quarter, which remains a healthy revenue growth record in the declining economy of 2016. The full year revenue outlook has improved further. The earlier turnover projection of N12.6 billion is revised upward to N14.2 billion for Presco at the end of 2016. This will be an increase of 36% over the turnover of N10.45 billion the company generated in 2015. The company has seen two years of gradual recovery in sales revenue, which has extended into a strong growth in the third year.

The company recorded a major advance in profit in the third quarter, lifting after tax from a little over N3 billion at the end of June to N6.80 billion at the end of September. That represents a year-on-year growth of 98% and a clear 193% above the full year figure of N2.32 billion the company posted at the end of 2015. The profit boost came from a gain from changes in biological assets, which added N3.75 billion to the income statement in the third quarter.

Net profit projection is revised upward to N7.7 billion for Presco at the end of 2016, ignoring any further gain in changes in fair value of biological assets in the final quarter. That will be a growth of 132% over the full year profit figure in 2015. The company had lost more than 55% of after tax profit last year, which is more than countered by the big turnaround in the current year.

Apart from the growth in earnings, there is also cost moderation, which has improved margins.

Cost of sales grew marginally by 3.4% compared to the increase of 48.4% in sales revenue. That spurred a rise of 73% in gross profit, raising gross profit margin from 64.6% in the same period in 2015 to 75.3% in September 2016.

Selling/administrative expenses also moderated relative to sales at an increase of 35.2% while finance charges dropped by 27.3% during the period. The company has reduced it short-term borrowings from over N2 billion at the end of last year to a little above N95 million at the end of September.

Despite a rise of 87% in distribution cost and a drop of 37% in other operating income, operating profit still grew by 86.5% to N6.66 billion. Exchange losses increased by close to 92% to about N934 million in spite of which the company still lifted pre-tax profit by 105.2% to N9.71 billion.

Presco earned N6.80 per share at the end of September, rising from N3.46 in the same period in 2015. The full year expectation is N7.50 per share compared to N2.32 in 2015.