Okomu Oil Palm Plc witnessed an unexpected loss of operating momentum in the second of its two critical quarters of the first half. The downturn set earnings crashing from the top to the bottom lines.
The company’s half-year interim financial report for the six months ended June 2023 shows a drop of 19 percent in turnover in the second quarter to N16.4 billion. However, costs grew against the drop in sales.
Cost of sales only inched down to N6.7 billion for the quarter, leading to a drop of 28 percent in gross profit to N9.7 billion. Net operating expenses for the quarter rose by almost 48 percent to over N5 billion – slashing operating profit by over 54 percent to N4.6 billion.
With a sharp drop in finance income and more than four times a jump in finance costs to N953 million, the oil palm and rubber producing company was headed for a big fall in profit in the second quarter but for a windfall of exceptional income of N4.4 billion.
The exceptional income, which came from the export expansion grant, provided more than one-half of the pre-tax profit of N8 billion for the second quarter and lowered the margin of after-tax profit drop to less than 18 percent to N6 billion.
The company, therefore, topped up its first-quarter profit of N10.2 billion to N16.2 billion in the half year. This is precisely the closing profit posted for the 2022 full year.
We had expected in our review of the company’s first-quarter performance that “with another earnings leap expected in the second quarter, the oil palm and rubber producing company looks quite good to beat its 2022 full-year profit of N16.2 billion by half a year”.
The company’s off-season-induced earnings slowdown appears to have begun earlier than usual this year, which is an indication of a difficult second half ahead. Last year, the entire second half was operated at a loss of N607 million.
The second quarter is normally the company’s peak output and earnings season for oil palm products.
Okomu Oil Palm has seen outstanding profit growth for the fourth year running to 2022 but a sudden cooling off looks quite likely this year.
The company’s half-year earnings reading is a dilution of a strong first quarter and a weakened second quarter. Sales revenue is slightly down at N40.6 billion for the six months of trading but production costs grew by 14.6 percent year-on-year to N11 billion.
Input cost is growing much more rapidly than sales revenue for the second year and has expanded its claim on sales from 18 percent in the first quarter to over 27 percent at the half year.
The bad combination of declining sales and rising cost of sales lowered gross profit from N31 billion to N29.5 billion over the review period. An increase of 33 percent in net operating expenses to N9.8 billion added to the pressure.
Operating profit went down by about 17 percent over the period to close at N19.7 billion for the half year.
Yet further constraint came from net finance cost, which jumped four times year-on-year to roughly N1.2 billion at the end of June 2023. Finance expenses multiplied from N254 million at the end of the first quarter to about N954 million in the second quarter.
The cost increases were remedied significantly by the exceptional income that flowed in during the second quarter – which beefed up pre-tax profit to N22.9 billion at the half year. The figure is still a decline from N23.4 billion pre-tax profit for the same period last year.
After-tax profit also went down by 3.8 percent over the period to N16.2 billion at half year. Profit margin is down from 41.3 percent in the same period last year to 39.9 percent at the half year.
Okomu Oil Palm earned N16.98 per share at the end of the half-year operations, down from N17.65 per share in the same period in 2022.
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