MARKET DEVELOPMENT
Presco Taps into Agro Sector Opportunities
Presco Taps into Agro Sector Opportunities
01/10/2015 (THISDAY Live) - Presco Plc is a dominant player in the agriculture sector of the Nigerian Stock Exchange (NSE). By the close of trading last week, the stock was the highest priced in the sector. Given its financial performance for the half year ended June 30, 2015, and high expectations for the third quarter ended September 30, 2015, demand for the stock and Presco Plc will witness more patronage. This will invariably lead to an increase in its price at the stock market.
Business/ownership structure
Presco is a subsidiary of Siat S.A., a Belgian agro-industrial company, with specialisation in industrial and as smallholder plantations of oil palm and rubber, and allied processing industries such as palm oil mills, palm oil refining.
As at December 2014, Siat S.A, held 60 per cent of the total issued shares. First Inland Bank/Fidelity Financial Co. (TRDG) also had 8.16 per cent of the equity.
The principal activities of Presco Plc are the development of oil palm plantations, palm oil milling, palm kernel processing and vegetable oil refining. The company cultivates oil palm and in the extraction, refining and fractionation of crude palm oil into finished products. It is also a supplier of specialty fats and oils. However, the company, based in Edo State, has commenced investment in the rubber sector with the establishment of a bud wood garden and the acquisition of 14,000 hectares of land for rubber and oil palm plantations.
Presco holds the Obaretin Estate, the Ologbo Estate, both located in Edo State, and the Cowan Estate in Delta State. The Company also owns a palm oil mill with a capacity of 60 tonnes fresh fruit bunches/hour, a refinery / fractionation plant with a capacity of 100 tonnes/day, and a palm kernel crushing plant with a capacity of 60M tonnes/day.
The company sells its products locally in Nigeria directly to customers comprising wholesalers, consumers and industrial users.
In terms palm oil products, Presco has special palm oil, refined, bleached and deodorised (RBDO) palm oil, palm fatty acid distillate (PFAD), palm olein, palm stearin, crude palm kernel oil (CPKO) and refine palm kernel oil (RPKO).
Financial Results
The challenging operating environment notwithstanding, Presco had positive results for the HI of 2015.Revnue stood at N4.685 billion in 2015, up from N4 billion in 2014.Gross profit was N2.635 billion, compared with N1.274 billion in 2014.The company paid higher finance cost of N321 million in 2015, up from N151 million in 2014.Profit before tax was N1.559 billion, as against N1.685 billion, while the company ended the period with a profit after tax of N1.191 billion, up from N1.086 billion in 2014.
Assessing the results, analysts at FSDH Research said the company’s turnover increased by 15.37 per cent to N4.69 billion, compared with N4.06bn recorded in the corresponding period of 2014.
“This increase in turnover could be attributed to the increased agricultural yields and production levels as a result of Presco’s expansion programme. The cost of sales decreased by 26.39 per cent to N2.05 billion from N2.79 billion recorded in 2014. These costs as a percentage of turnover decreased 43.79 per cent in 2015 from 68.62 per cent in 2014. The reduction in these costs could be linked to multiple improved efficiencies on industrial operations including further automation and the use of green energy,” they said.
According to them, the administrative, distribution and other expenses increased by 9.08 per cent to N934.43 million in 2015. The other income for HY 2015 decreased by 34.69 per cent to N84.02 million, compared with N128.65 million recorded for the corresponding period of 2014, while the finance charges increased from N151.38 million to N321.38 million in HY 2015, representing a significant increase of 112.30 per cent from the previous year.
“This increase in financial charges can be linked to the devaluation of the Naira and rising interest rates. The company’s HY 2015 Profit Before Tax (PBT) stood at N1.56 billion, down from N1.69 billion in 2014. The drop in the PBT can be linked to the drop in the gain on the biological assets revaluation. The tax provision decreased to N368.14 million from N598.56 million in HY 2014. This led to a Profit After Tax of N1.19 billion in 2015, up by 9.61 per cent from N1.09 billion recorded in 2014. The rise in profitability is a reflection of the deferred tax income for the company and improved efficiency, despite the significant increase in finance charges,” the analysts said.
Profit Margins
According to FSDH Research, the company’s profit margins decreased in HY 2015 compared with HY 2014 except the gross profit margin. The Gross Profit (GP) margin stood at 56.21 per cent in 2015, up from 31.38 per cent in 2014.
“This is a combination of an increase in turnover and a drop in the cost of sales. The PBT margin in 2015 decreased over the HY 2014 figure and the PBT margin of the financial year ended December ( 2014. The PBT margin decreased to 33.28 per cent in 2015 from 41.49 per cent in HY 2014 and 37.43 per cent in FY 2014. The PAT margin currently stands at 25.42 per cent, down from 26.75 per cent in the corresponding period of 2014, and from 28.51 per cent as at FY 2014.
This result also indicates that the percentage of turnover , PBT, and PAT in June 2015 to the audited turnover , PBT and PAT for the period ended December 2014 are: 51.28 per cent, 45.59 per cent and 45.72 per cent, respectively. Given the run rate, the company should meet its previous year’s top line performance but would have to improve on its efforts to meet the previous year’s bottom line. The turnover and PAT of the company improved in Q2, over Q1 2015, while the PBT dropped because of the drop in the revaluation of biological assets,” the analysts said.
Balance Sheet
Looking at the at the balance sheet position of Presco as at HY 2015 compared with the position as at FY 2014, FSDH Research said it showed an increase in the company’s fixed assets. The total fixed assets increased by 3.38 per cent to N32.82 billion in 2015 from N31.75 billion in 2014.
“The stock increased by 28.11 per cent to N1.75 billion in 2015 from N1.36 billion in 2014. The cash and bank balances recorded a significant increase of 108.72 per cent from N63.09 million in 2014, to N131.68 million in 2015. The trade debtors and other receivables increased in 2015 by 28.98 per cent to N2.28 billion from N1.77 billion in 2014, while trade creditors and other payables also increased by 8.58 per cent to N3.69 billion from N3.40 billion as at FY 2014. Net assets for the period increased by 5.97 per cent to stand at N21.15 billion from N19.96 billion in the FY 2014,” they explained. In terms of financing the total assets, the company used a mix of equities and liabilities in the ratio of 57.19 per cent and 42.81 per cent respectively.
“Our analysis of the liabilities shows that the short-term liabilities stood at N4.98 billion, accounting for 31.48 per cent of the total liabilities, while the long-term liabilities which stood at N10.85 billion, accounting for 68.52 per cent of the total liabilities. The short term liabilities constituted mainly of trade and other payables and current financial liabilities. Long term liabilities constituted mainly of deferred tax liabilities and borrowings. The deferred tax liabilities increased to N7.23 billion in 2015, from N6.82 billion in 2014, and although the long term borrowings decreased to N3.38 billion in 2015 from N3.64 billion in FY 2014, there was an increase in the finance expense,” they said.
Strategic Focus
Going forward, Presco plans to continue with its focused expansion programme. The expansion programme includes the ongoing execution of plans to plant and replant a total of 3,500 hectares between 2014 and 2016 at Ologbo and Obaretin Estates. In addition, Presco is also continuously working to acquire and increase its land bank. The company will also concentrate on efficiencies in the management of operations in its value chain. Besides, the company commits itself to Research and Development, spending N72.4 million on that area in 2014.
Business/ownership structure
Presco is a subsidiary of Siat S.A., a Belgian agro-industrial company, with specialisation in industrial and as smallholder plantations of oil palm and rubber, and allied processing industries such as palm oil mills, palm oil refining.
As at December 2014, Siat S.A, held 60 per cent of the total issued shares. First Inland Bank/Fidelity Financial Co. (TRDG) also had 8.16 per cent of the equity.
The principal activities of Presco Plc are the development of oil palm plantations, palm oil milling, palm kernel processing and vegetable oil refining. The company cultivates oil palm and in the extraction, refining and fractionation of crude palm oil into finished products. It is also a supplier of specialty fats and oils. However, the company, based in Edo State, has commenced investment in the rubber sector with the establishment of a bud wood garden and the acquisition of 14,000 hectares of land for rubber and oil palm plantations.
Presco holds the Obaretin Estate, the Ologbo Estate, both located in Edo State, and the Cowan Estate in Delta State. The Company also owns a palm oil mill with a capacity of 60 tonnes fresh fruit bunches/hour, a refinery / fractionation plant with a capacity of 100 tonnes/day, and a palm kernel crushing plant with a capacity of 60M tonnes/day.
The company sells its products locally in Nigeria directly to customers comprising wholesalers, consumers and industrial users.
In terms palm oil products, Presco has special palm oil, refined, bleached and deodorised (RBDO) palm oil, palm fatty acid distillate (PFAD), palm olein, palm stearin, crude palm kernel oil (CPKO) and refine palm kernel oil (RPKO).
Financial Results
The challenging operating environment notwithstanding, Presco had positive results for the HI of 2015.Revnue stood at N4.685 billion in 2015, up from N4 billion in 2014.Gross profit was N2.635 billion, compared with N1.274 billion in 2014.The company paid higher finance cost of N321 million in 2015, up from N151 million in 2014.Profit before tax was N1.559 billion, as against N1.685 billion, while the company ended the period with a profit after tax of N1.191 billion, up from N1.086 billion in 2014.
Assessing the results, analysts at FSDH Research said the company’s turnover increased by 15.37 per cent to N4.69 billion, compared with N4.06bn recorded in the corresponding period of 2014.
“This increase in turnover could be attributed to the increased agricultural yields and production levels as a result of Presco’s expansion programme. The cost of sales decreased by 26.39 per cent to N2.05 billion from N2.79 billion recorded in 2014. These costs as a percentage of turnover decreased 43.79 per cent in 2015 from 68.62 per cent in 2014. The reduction in these costs could be linked to multiple improved efficiencies on industrial operations including further automation and the use of green energy,” they said.
According to them, the administrative, distribution and other expenses increased by 9.08 per cent to N934.43 million in 2015. The other income for HY 2015 decreased by 34.69 per cent to N84.02 million, compared with N128.65 million recorded for the corresponding period of 2014, while the finance charges increased from N151.38 million to N321.38 million in HY 2015, representing a significant increase of 112.30 per cent from the previous year.
“This increase in financial charges can be linked to the devaluation of the Naira and rising interest rates. The company’s HY 2015 Profit Before Tax (PBT) stood at N1.56 billion, down from N1.69 billion in 2014. The drop in the PBT can be linked to the drop in the gain on the biological assets revaluation. The tax provision decreased to N368.14 million from N598.56 million in HY 2014. This led to a Profit After Tax of N1.19 billion in 2015, up by 9.61 per cent from N1.09 billion recorded in 2014. The rise in profitability is a reflection of the deferred tax income for the company and improved efficiency, despite the significant increase in finance charges,” the analysts said.
Profit Margins
According to FSDH Research, the company’s profit margins decreased in HY 2015 compared with HY 2014 except the gross profit margin. The Gross Profit (GP) margin stood at 56.21 per cent in 2015, up from 31.38 per cent in 2014.
“This is a combination of an increase in turnover and a drop in the cost of sales. The PBT margin in 2015 decreased over the HY 2014 figure and the PBT margin of the financial year ended December ( 2014. The PBT margin decreased to 33.28 per cent in 2015 from 41.49 per cent in HY 2014 and 37.43 per cent in FY 2014. The PAT margin currently stands at 25.42 per cent, down from 26.75 per cent in the corresponding period of 2014, and from 28.51 per cent as at FY 2014.
This result also indicates that the percentage of turnover , PBT, and PAT in June 2015 to the audited turnover , PBT and PAT for the period ended December 2014 are: 51.28 per cent, 45.59 per cent and 45.72 per cent, respectively. Given the run rate, the company should meet its previous year’s top line performance but would have to improve on its efforts to meet the previous year’s bottom line. The turnover and PAT of the company improved in Q2, over Q1 2015, while the PBT dropped because of the drop in the revaluation of biological assets,” the analysts said.
Balance Sheet
Looking at the at the balance sheet position of Presco as at HY 2015 compared with the position as at FY 2014, FSDH Research said it showed an increase in the company’s fixed assets. The total fixed assets increased by 3.38 per cent to N32.82 billion in 2015 from N31.75 billion in 2014.
“The stock increased by 28.11 per cent to N1.75 billion in 2015 from N1.36 billion in 2014. The cash and bank balances recorded a significant increase of 108.72 per cent from N63.09 million in 2014, to N131.68 million in 2015. The trade debtors and other receivables increased in 2015 by 28.98 per cent to N2.28 billion from N1.77 billion in 2014, while trade creditors and other payables also increased by 8.58 per cent to N3.69 billion from N3.40 billion as at FY 2014. Net assets for the period increased by 5.97 per cent to stand at N21.15 billion from N19.96 billion in the FY 2014,” they explained. In terms of financing the total assets, the company used a mix of equities and liabilities in the ratio of 57.19 per cent and 42.81 per cent respectively.
“Our analysis of the liabilities shows that the short-term liabilities stood at N4.98 billion, accounting for 31.48 per cent of the total liabilities, while the long-term liabilities which stood at N10.85 billion, accounting for 68.52 per cent of the total liabilities. The short term liabilities constituted mainly of trade and other payables and current financial liabilities. Long term liabilities constituted mainly of deferred tax liabilities and borrowings. The deferred tax liabilities increased to N7.23 billion in 2015, from N6.82 billion in 2014, and although the long term borrowings decreased to N3.38 billion in 2015 from N3.64 billion in FY 2014, there was an increase in the finance expense,” they said.
Strategic Focus
Going forward, Presco plans to continue with its focused expansion programme. The expansion programme includes the ongoing execution of plans to plant and replant a total of 3,500 hectares between 2014 and 2016 at Ologbo and Obaretin Estates. In addition, Presco is also continuously working to acquire and increase its land bank. The company will also concentrate on efficiencies in the management of operations in its value chain. Besides, the company commits itself to Research and Development, spending N72.4 million on that area in 2014.