Presco Plc raced through the earnings track in 2021 from the first quarter to finish the financial year multiplying profit more than three and half times to almost N19 billion.
The oil palm and rubber producing company experienced robust growth roundabout from the balance sheet to revenue down to profit, marking the most outstanding year in operations as expected.
In our full-year outlook for the company at the end of the third quarter trading, we had marked Presco as one of a few companies from which outstanding corporate earnings reports for the 2021 operations are to be expected.
The closing profit for the year equals the entire four years’ profit to 2020 put together. That takes the company’s profit record close to the all-time peak of N21.7 billion it registered in 2016.
The company’s earnings performance was not even across quarters as expected, which is due to the off-season effect. The second and the final quarter were the critical earnings period for the company, contributing N6.7 billion and over N5 billion respectively or 62 per cent of the year’s profit.
The company expanded its earnings capacity in the year with its acquisition of Sat Nigeria Limited – which swelled its balance sheet to the tune of N23 billion. Also, cash resources swelled from N2.6 billion at the end of the previous year to N22.6 billion at the end of 2021.
The increases led to major growth in the size of the balance sheet by 66.6 per cent to the region of N123 billion at the end of the year. A gain of over N2.6 billion in biological assets helped to boost both the balance sheet and the income statement in the year.
Asset productivity increased significantly in the year, showing an increase in the flow of assets into revenue. Asset turnover improved from 0.32 in 2020 to 0.38 in 2021, showing that the naira of assets produced 38 kobos of revenue in the year compared to 32 kobos in the preceding financial year.
The company was therefore able to grow sales revenue far ahead of total assets. Presco closed the 2021 operations with sales revenue of over N47 billion, which is a near doubling of the turnover figure of under N24 billion in the prior fiscal year. It marks the strongest revenue growth for the company in several years.
Sales revenue accelerated across quarters from 48 per cent growth quarter-on-quarter in the first quarter to 67 per cent in the second quarter and from 134 per cent in the third quarter to 161 per cent.
The company also recorded a significant improvement in the flow of revenue into profit, as costs moderated. Leading the cost-savings the cost of finance, dropped by 68 per cent to N617 million in 2021.
Administrative expenses slowed down relative to turnover at an increase of 26 per cent to N8.6 billion. Tax expenses also claimed a reduced share of earnings in the year at N4.9 billion at the end of the year.
Two major cost elements of the company however grew slightly ahead of sales revenue and therefore afforded no cost saving in the year. The first is the cost of sales, which more than doubled at 105 per cent to N16 billion over the review period.
Cost of sales made a mild encroachment on gross profit, as its rapid growth of 124 per cent recorded at the end of the third quarter slowed down at full year. It still claimed a slightly increased proportion of sales revenue at 34 per cent against 32.6 per cent in the preceding year.
The second is selling and distribution cost, which grew by 104 per cent to N650 million. The company generated a gross profit of over N31 billion, which is an outstanding increase of 94 per cent.
With the positive impact of the cost-saving in the year, the company generated an operating profit of over N24 billion. This represents an increase of 131 per cent from an operating profit of N10.5 billion in the preceding year,
The favourable effect of some cost savings achieved is an improvement in profit margin – which rose from 22 per cent in 2020 to 40 per cent in 2021. The combination of gains in asset turnover and profit margin powered an improvement in rates of return for Presco in 2021
Presco closed the third quarter of operations with earnings per share of N18.87 compared to N5.16 per share in 2020. The company paid an interim cash dividend of N1 per share in the financial year while a final cash dividend is to be expected.
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