Presco Nigeria profit surges on cost cuts

NIGERIAPresco Nigeria Plc’s cost control measures put in place by its proactive management have paid off as half year net income increased 10.18 percent amid tough operating environment crimping the growth of companies in Africa’s largest economy.

Profit was N1.19 billion in June 2015, from N1.08 billion the same period of the corresponding year (HI) 2014.

The growth at the bottom line was a result of a 25.25 percent reduction in cost of sales to N2.05 billion from N2.78 billion last year.

This means the Nigeria producer of the oil palm is spending less on production costs to generate each unit of sales.

The scale benefits from Presco’s recently completed biogas plant have led to significant cost savings, according to Kingston Nwosu, equity research analysts with FBN Capital in an emailed note to BusinessDay.

“Management disclosed that Presco now saves around $200,000 per month on fuel costs,” said Nwosu.

The company has planted 1,500 hectares in 2014 and targeting 20,000 hectares by 2020. It already has 11,760 hectares planted, according to its website. Presco doubled processing capacity at its palm-oil mill to 70 metric tons an hour last year and is expanding its refinery to 300 tons a day from 100.

Siat group, a company with 50 percent shareholding in Presco is turning to rubber output as it seeks to increase its share of the market.

The focus strategy and market penetration of the largest palm oil producer has yielded the desired results as sales jumped by 15.27 percent to N4.68 billion in June 2015 as against N4.06 billion the previous year.

“It appears Presco’s aggressive expansion plans are paying off sooner than expected. Total land area has increased by 17% in 2015 to 16,475ha from 14,059ha as at Dec-2014, said Nwosu.

Presco’s stellar performance means Nigeria is gradually getting close to reclaiming its position as a global player in the oil palm industry.

Nigeria, Africa’s leading crude producer and most populous nation, ranks behind Malaysia and Indonesia as the world’s largest oil palm producer, according to the Food and Agriculture Organisation (FAO).

Nigeria’s palm oil production volume to land area ratio of 0.3 tonnes per hectare (Te/ha) compares with Malaysia’s 3.6te/ha and Indonesia’s 3.0te/ha, while on a per capita basis consumption at 8kg is below the global average of 21kg.

Industry players have bemoaned the increased importation of cheap palm oil into the country saying it is causing a glut in the market, thereby eroding margins of local producers and stifling the growth prospects of companies in the sector.

Presco is efficient in managing direct costs attributable to projects as gross profit surged by 107.10 percent to N2.63 billion in the period under review as against N1.27 billion the previous year. Gross profit margin moved to 56.19 percent in June 2015 compared with N31.28 percent last year.

The company’s share closed at N31 on the floor of the exchange while market capitalization was N31 billion.

September 4, 2015; http://businessdayonline.com/2015/09/presco-nigeria-profit-surges-on-cost-cuts/

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