Rising Costs Again Slow Down Presco’s Profit In Q2

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Presco Plc, the oil palm and rubber producing company, encountered further cost increases in the second quarter that slowed down profit improvement amidst strongly growing sales revenue.

While the company grew turnover by over 63 per cent quarter-on-quarter to N22 billion in the second quarter, it improved profit by only 12.7 per cent to N7.6 billion for the second quarter.

Presco’s interim financial report for the half year ended June 2022 shows a slowdown in both sales revenue and profit in the second quarter, which has moderated the half year growth records.

Underlying the disparity in revenue and profit improvements is intensifying rapid increase in costs. The three key expense lines of the company are on top speed growth this year. Cost of finance led the cost increases, multiplying 16.5 times to N2.4 billion in the second quarter.

Administrative expenses followed on the cost increases, jumping more than three times quarter-on-quarter to N4.7 billion. Cost of sales also grew ahead of sales revenue at 67 per cent quarter-on-quarter to N5.7 billion.

While costs grew rapidly, turnover slowed down from a two and half times jump in the first quarter to 63 per cent increase quarter-on-quarter in the second. Pressure from costs depressed margins and after-tax profit therefore decelerated from a 53 per cent rise in the first quarter to a 12.7 per cent increase in the second quarter.

Despite the slowdown in growth rates, the company realized bigger earnings figures in the second quarter than in the first. Compared to less than N20 billion in the first quarter, sales revenue topped up at N22 billion in the second quarter and profit went up from less than N6 billion in the first quarter to N7.5 billion in the second.

However, rising costs claimed increased proportions of sales revenue, cutting the profit margin from 49.7 per cent in the same quarter last year to 34.3 percent in the second quarter of the current financial year.

The year-to-date position of the company shows a turnover of N41.7 billion for Presco at the end of half-year trading in June 2022. This represents a strong growth of 94 per cent year-on-year albeit the slowdown from the exceptional growth in the first quarter.

Rising costs stand in the way of the company in converting revenue into profit. The cost of input amounted to over N11 billion at the half year, representing over 132 per cent advance year-on-year. The proportion of sales revenue claimed by the cost of sales grew from 23 per cent to 27.5 per cent over the review period.

However, with strong growth in sales revenue going for the company for the second year, it can absorb the cost increases and still keep gross profit remarkably up by roughly 83 per cent year-on-year to over N30 billion at the end of half-year operations. This is a slowdown from a 116 per cent rise in gross profit in the first quarter.

Administrative expenses increased further its already high-speed growth from 151 percent in the first quarter to N187 per cent leap to over N8 billion at the half year. The figure is almost at par with the administrative cost of N8.6 billion for the 2021 full year.

Despite the increases in operating expenses, Presco was still able to raise operating profit by 62 per cent to close at N21.7 billion at the half. This is a slowdown from 94 per cent growth in operating profit in the first quarter.

Cost of finance continues to grow rapidly, jumping close to nine times from N440 million to almost N3.9 billion over the review period. The figure has already far exceeded the full-year figure of N2.5 billion last year.

The company’s interest-bearing debts have expanded further from about N52 billion at the end of the first quarter to over N65 billion at half a year.

Presco closed the half-year operations with an after-tax profit of N13.5 billion, which was an increase of 35 per cent year on year. It earned N13.47 per share compared to N10.13 kobo per share in the same period in 2021.

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