Okomu Oil Palm Plc tremendous leap in profit amid currency volatility, decrepit infrastructure and a high interest and inflationary environment has validated management growth strategy.
The company also recorded strong profit margins, which means it is efficient in using every naira invested by its shareholders on equity and assets in generating higher profit.
Net income for the six months through June rose by 95.12 percent to N3.59 billion compared to N1.84 billion a year earlier. Sales followed the same growth trajectory as it increased by 50.80 percent to N7.54 billion, as the company continues to double capacity in dry rubber per hour.
Analysts say the company’s aggressive expansion in oil palm plantation with a view to increasing its share of the market is responsible for the increased sales, high margins and favourable return on shareholders’ investment.
Net profit margin, a measure of profitability and efficiency jumped to 91.53 percent in June 2016 from 85.20 percent as at June 2015. Operating profit margins increased to 53.51 percent in the period under review as against 46.17 percent as at June 2015.
“Q2 2016 sales were mainly boosted by palm oil sales which grew by 80% y/y to N3.8bn. Rubber sales on the other hand, declined by -10% y/y to N411.7m. The commodity now accounts for just fewer than 10% of the company’s revenue vs 40% in 2011,” said Jumoke Okeowo, equity research at FBNQuest, in a recent note to BusinessDay.
“Although, rubber volumes have dropped, unfavourable global prices were mainly responsible for the weak performance of the commodity. In the past, Okomu management expressed plans to expand their palm oil plantation intensively. We believe the strong growth in palm oil sales was mainly as a result of these expansion plans,” said Okeowo.
The company has spent as much as N2.5 billion on new plantation while working assiduously to revitalise agric business in Africa largest economy, according to managing director and CEO, Graham Heifer.
It has also been expanding with approximately 3,500 hectares of rubber from 2012 through to 2015 while having hectares under cultivation. The company has been producing palm oil for 35 years in the West African nation; started a rubber-tree plantation since 2001, and as such, additions bolstered margins.
Okomu is spending less on input cost to produce each unit of product as production cost to sales fell to 46.42 percent in the period under review as against 52.66 percent as at June 2015.
However, production costs increased by 33.46 percent to N3.51 billion in June 2016 as against N2.63 billion the previous year.
Experts are of the view that companies in the industry can generate high revenue if government removes bottlenecks like multiple and illegal taxes.
There are other factors crimping the growth of companies in the country and this includes epileptic power supply and shortage of dollars that make it difficult to import plants and machineries used at the factories to produce goods.
Despite the challenges aforementioned, Okomu Oil has effectively utilised the resources of shareholders in generating high profit as Return on Equity (ROE) moved to 23.72 percent in June 2016 as against 15.25 percent last year.
“We also suspect that weaker competition from imports due to FX devaluation likely helped Okomu gain share and boosted its top line. We will seek management’s confirmation on this,” said Okeowo.
BALA AUGIE
