Palm oil makers’ net income plunges to 3-yr low on revenue slide

Palm oil producers benefitted from the blacklisting of some 42 items including palm oil by the Central Bank of Nigeria in 2015 when a dollar shortage fuelled local demand for the agro-product, but those gains are fizzling out.

Profit of listed agro-businesses, Okomu oil and Presco, slid to a 3-year low in the first half of 2019 as sales slowed in the period. Okomu Oil posted a profit of N2.53 billion while Presco announced N3 billion.

The depressing performance was on the heels of increased importation of crude palm oil (CPO) on the back of improved dollar liquidity while the joint effect of a porous border has dampens prospects for domestic producers.

“I do not think there is any sort of near term catalyst more so that local demand is low and there’s still no improved controls over the borders,” Gbolahan Ologunro, analyst at CSL stockbrokers told Businessday.

“If measure to address the porous borders are put in place, local demand would revert back to the local pro

ducers,” Ologunro suggested.

In H1 2019 the two oil palm makers recorded a significant drop in their profit with Presco slowing down by 24 percent while Okumu’s plunged 57 percent.

This extended a downward trend in profit which started in 2018 as a glut in major producing countries saw imported CPOS flood the Nigerian market, hence reducing demand for local palm oil outputs.

As a result, the pace at which sales grew has worsened since its 5-year high in 2017. Presco noted 71 percent and Okomu had 65 percent in H1 2017.

Growth in sales has trended lower in the last two H1 periods to -9.1% and -9.52 for Presco and 3.72% and -33.8% for Okomu.

High cost of production amid infrastructural gaps and logistics concerns translate to higher prices which make local produce uncompetitive and create a viable market for smugglers plugging supply deficit in the sector.

A myriad of downturns has hindered Nigeria from gaining substantial share of the global oil palm industry which worth about $62 billion annually, casting doubts on government’s ability to grow non-oil revenue.

Nigeria’s oil palm sector industry’s contribution to global market share is a meagre 1.40 percent as of 2018, according to data from United State Department of Agriculture (USAD), against 45 percent in 1960.

If the country had maintained its 45 percent market share today, it would have been earning $27.9 billion only from palm oil.

Analysts at Afrinvest Research Ltd, in their 2018 outlook for the oil palm industry, attributed the production downturn that damped market share to traditional and crude production methods by smallholder famers that account for 80 percent of the industry supply.

The report also identified other stumbling blocks to include the country’s focus on exploration and export of crude product, persistent low yields per hectare, and the impact of the civil war on oil palm producing communities.

In addition, analysts are not optimistic of the impact of the recently signed AFCTA on the palm oil industry. Squeezing margins

The gross margin which measures how much companies retains from revenue realised net of direct cost dwindled year-on-year in H1 for both oil palm makers.

For Presco gross margin slowed to 79.8 percent from 80.6 percent while for Okomu oil the margin fell to 80.2 percent from 86.1 percent yearon-year in H1 2019.

EBITDA margin, an assessment of a firm’s operating profitability as a percentage of its total revenue, plunged for both oil palm producers. While Okomu’s EBITDA margin fell to 43.4 percent in H1 from 59.2 percent last year, Presco’s margin fell to 52.1 percent from 59 percent over the review period.

Net margin, the proportion of revenue that a company keeps as net profit

Dipped to 28.6 percent from 34.2 percent for Presco and to 45.9 percent from 29.5 percent for Okomu oil.