The Okomu Oil Palm normally experiences a pattern of rise and fall in earnings and this year seems to be another down year for the company by its first quarter performance. Sales revenue failed to grow during the period and the full year outlook is indicating that turnover may be down for the oil palm producing company for the third year running. Profit performance follows the same pattern as revenue but full year outlook is promising to raise profit from a major drop last year.
The company generated sales revenue of N1.83 billion in the first quarter, which is a slight decline from the corresponding figure in the preceding year. Based on the current growth rate, full year sales revenue is projected at N8.5 billion for Okomu Oil in 2014.
The projected revenue indicates a decline of 4.1% from the turnover figure of N8.86 billion the company posted in 2013. The 2013 figure was a continuing decline from the company’s peak revenue figure of N11.12 billion in 2010. The company’s earnings performance in the first quarter therefore indicates a good possibility that sales revenue could decline for the third consecutive year. Sales volume fluctuates widely for oil palm producing companies, as product yield changes with weather conditions.
A favourable development during the quarter was a drop of 26% in cost of sales at N472 million from the corresponding figure in the preceding year. That resulted in an increase of 13.1% in gross profit to N1.36 billion during the review period. Gross profit margin therefore improved from 65.3% in the first quarter of 2013 to 74.2% in 2014. Gross profit margin is also significantly better than the 56.3% mark achieved at the end of the 2013 financial year.
The revenue gained from the drop in cost of sales could not flow down to the bottom line due to major cost increases. Interest expenses, Distribution/marketing and administrative cost claimed increased shares of sales revenue during the period. Interest cost rose from only N1.6 million in the first quarter of last year to N36 million in 2014. It is already above the N33 million the company paid in all of its 2013 operations.
Distribution/marketing expenses rose by 282% to N42 million over the period against the marginal decline in sales revenue. Administrative expenses also grew by 5.8% to N620 million over the review period. The impact of the cost increases on the bottom line was reinforced by a drop of 86% in other operating income, which came to N20 million at the end of the first quarter. Finance income, which amounted to N102 million at the end of last year, was missing completely in the first quarter.
The company posted a pre-tax profit of N679 million in the first quarter, which is a marginal decline of 1.2% over the corresponding figure in the preceding year. After tax profit is projected at N2.2 billion for Okomu Oil Palm in 2014. This will be a major recovery after a major drop in profit in 2013.
The full year profit projection is subject to wide fluctuations that usually define the company’s earnings pattern. At 37.1%, profit margin is slightly down from 37.4% in the first quarter of 2013 but has improved from 30.4% in December 2013.
Rising interest expenses in the current year follows a major increase in short-term borrowings. Against a zero balance at the end of last year, the company has added short-term debts of N1.78 billion to the balance sheet this year. Other liabilities have also expanded by 137% to N884 million year-on-year at the end of the first quarter. Long-term borrowings have however dropped by 35.6% to N1.27 billion over the same period.
The absence of interest income in the first quarter reflects adverse cash flow pressure facing the company this year. Cash & bank balances dropped by 81.4% to N966 million. Trade and other receivables advanced by 693.3% to N3.08 billion and inventories rose by 24.6% year-on-year. Trade and other payables nearly doubled at N539 million over the same period.
The changes in the balance sheet yielded to cash flow difficulties for the company in the first quarter. Net cash generated from operating activities was negative at N1.02 billion compared with a positive cash generation of N2.87 billion in the corresponding period last year. Net cash used for investing activities amounted to N542 million in the first quarter against a cash generation of N3.78 billion from investing activities in the same period last year.
Net cash used for financing activities declined considerably but despite that, there was a net cash decrease of N1.58 billion at the end of the first quarter. The opening cash balance for the period has been used up and the company closed the first quarter operations with a negative cash position, which is expected to intensify in the course of the year.
The increased cash flow difficulties expected
The Okomu Oil Palm loses revenue, profit in the first quarter
will mean increased borrowing need for the company this year. This indicates that interest expenses can be expected to grow with negative implications for profit margin and the bottom line.
The company earned 71 kobo per share in the first quarter, slightly down from 72 kobo per share in the corresponding quarter last year. Full year earnings per share is projected at N2.30 for Okomu Oil Palm in 2014. Net assets per share has declined from N27.27 to N25.03 over the review period.
