Presco Plc returned to the growth track last year the oil palm and the rubber-producing company is maintaining the elevated position for the second year. The company ended a three-year downtrend in profit in 2020 and lifted profit a clear 38 per cent to close at over N5 billion.
The current financial year is seeing a further gain in earnings momentum. Profit more than doubled at N3.8 billion in the first quarter ended March 2021. That is already close to 75 per cent of the full-year profit last year.
At the centre of the company’s turnaround is the rebuilding of sales revenue. There has been a change of trend since last year from declining turnover to growing sales once again. Sales revenue rose by 21 per cent to hit a new high at almost N24 billion at the end of 2020.
The strength in sales revenue performance was sustained in the first quarter with a significant acceleration. With close to N8 billion in the first quarter, sales revenue grew by roughly 48 per cent year-on-year.
Presco hasn’t achieved sales improvement that strong in years. There isn’t a reasonable headway yet in navigating through weak commodity prices at the international market that had constrained sales revenue.
However, the depreciation of the naira has helped to counter the effect of the decline in the average selling price of crude palm oil. The advantage for the company is its local dependence on input, which shields it from the other side of exchange-based cost increases.
Input cost remains relatively low at 19 per cent of turnover and also grew well below it at 28.6 per cent in the first quarter against the 48 per cent growth in sales. This enabled management to convert the revenue gains into profit.
Gross profit grew by about 53 per cent year-on-year to N6.4 billion in the first quarter, doubling the 26 per cent increase last year. This has improved gross profit margin further from 67 per cent at the end of the 2020 financial year to 81 per cent at the end of the first quarter.
At an increase of 13 per cent to N1.4 billion, administrative expenses moderated relative to revenue and selling/distribution cost remained quite low at N105 million. Further revenue gains came from a shift from other losses to other gains of N224 million and gains of N150 million on biological assets revaluation.
The gains in revenue against moderated cost behaviour worked out an outstanding growth in operating profit over the review period. Operating profit grew by 84 per cent year-on-year to over N5 billion in the first quarter.
Sales revenue amounted to N7.9 billion for Presco at the end of the first quarter operations in March 2021. This is a year-on-year improvement of 48 per cent in turnover, maintaining a rebound in sales revenue the company recorded last year.
The company expectedly closed the 2020 financial year with a new peak in sales revenue, beating its existing record of N22.4 billion achieved in 2017. Based on the first-quarter growth rate, the strongest growth in sales may be expected for Presco in 2021.
The company earned an after-tax profit of N3.8 billion at the end of the first quarter operations. This is a year-on-year increase of 113 per cent, accelerating from the profit growth of 37 per cent at the end of 2020.
The ability to grow profit well ahead of turnover defines a strong gain in profit margin. This indicates significant cost savings alongside the revenue improvement.
Finance expenses present a cost-saving front this year with a drop of 41 per cent to N295 million at the end of the first quarter. With that, management continued to reduce the proportion of operating profit devoted to financing expenses from 18 per cent at the end of 2020 to 5.6 per cent in the first quarter.
Profit margin improved from 22 per cent at the end of last year to 48.4 per cent at the end of the first quarter. This is one of the highest profit margins seen across sectors and industries in the first quarter.
Earnings per share amounted to N3.84 at the end of the first quarter compared to N1.80 in the same period last year. The company earned N5.26 per share at the end of 2020 and paid a cash dividend of N2 per share to shareholders.
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