Presco Plc has ended a bad trend of three years of dropping profit that extended into the first quarter of 2020. It sealed the prospects for the falling profits extending to the fourth year with a rebound at half-year – which it sustained at the end of the third quarter in September 2020. The oil palm and rubber producing company look quite good to push full-year profit to a four-year high with last year’s operations.
At N5 billion at the end of the third quarter, the company’s after-tax profit is already standing at about 132 per cent of the full-year profit of N3.8 billion in 2019. The final quarter is the company’s offseason with the least contribution to profit expected. Yet, there is a reasonable chance that the company could match or exceed the profit mark of N5.7 billion it posted in 2017.
The company’s turnaround centres on sales revenue performance. There has been a change of direction for Presco from losing sales revenue from 2018 to growing turnover in 2020. Management is navigating through weak commodity prices at the international market that is constraining sales revenue.
The depreciation of the naira has helped to counter, part of the effect of the decline in the average selling price of crude palm oil. The decline had caused a drop of close to 8 per cent in turnover in 2019.
The improvement in sales revenue is accompanied by smoothening of some kinks on the cost structure. Input cost changed direction from rising against declining sales revenue to growing below it.
Conversely, gross profit has stopped declining and closed a clear 27 per cent up year-on-year at the end of the third quarter. That has improved gross profit margin slightly at 63 per cent at the end of the third quarter.
Selling/distribution and administrative expenses declined at the end of the third quarter. But other losses soared to over N586 million during the period.
Sales revenue amounted to N18.9 billion for Presco at the end of the third quarter operations in September 2020. This is a year-on-year improvement of 24.6 per cent. This has ended a declining trend in turnover the company recorded for three years running up to 2019.
Sales revenue for the nine months is already quite close to the closing figure of N19.7 billion in 2019. The company could possibly close the 2020 financial year with a new peak in sales revenue, beating its existing record of N22.4 billion achieved in 2017.
After-tax profit amounted to N5 billion for Presco at the end of the third quarter operations. This is a year-on-year increase of 56 per cent compared to a drop of 10.4 per cent at the end of 2019. Profit growth is more than twice the increase of roughly 25 per cent in turnover, reflecting significant cost savings alongside the revenue improvement.
This is a change of trend for Presco from a three-year fall in the company’s profit records. The company’s profit fell in 2017 from the height of close to N22 billion in 2016 to N5.7 billion. It dropped further to N4.3 billion in 2018 and yet further to N3.8 billion in 2019.
Pressure on margins seen at the beginning of the year eased along the way with the slowdown in input and other key costs. The resulting gain in gross profit flowed down to the bottom line to boost profit margin.
The cost savings came from administrative expenses, which went down by 8 per cent year-on-year to N3.3 billion at the end of the third quarter. Selling and distribution expenses also dropped by 16 per cent to N274 million over the same period.
The developments led to a 37 per cent leap in operating profit to N7.8 billion at the end of September 2020. This is a change of direction from a decline in operating profit at the beginning of the year.
Finance expenses declined by 7.6 per cent to N1.2 billion at the end of the third quarter, reversing from a 59 per cent growth in 2019. With that, management cut down the proportion of operating profit devoted to financing cost from 34 per cent at the end of 2019 to 15.6 per cent.
Profit margin improved from 21 per cent to 26.6 per cent over the review period, the highest net profit margin for Presco since 2017.
Earnings per share grew from N3.22 in the third quarter of 2019 to N5.03 at the end of September 2020. The company earned N3.84 per share at the end of 2019 and paid a cash dividend of N2 per share to shareholders.
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