MARKET DEVELOPMENT
High Finance, Operating Costs Slow Oil Palm Companies Profits
High Finance, Operating Costs Slow Oil Palm Companies Profits
07/02/2014 (BusinessDay) - Listed oil palm companies operating in Nigeria have had their profits crimped as a result of international price volatility, mounting operational expenses and surging interest on borrowing, as revealed by their third quarter 2013 reports.
“Downward trends in harvests as a result of floods, or insect attacks on farms could affect sales; furthermore, these companies may have borrowed money to finance huge expansion, thus paying interest, thereby slowing profits,” said an agriculture analyst in a telephone interview with BusinessDay.
“Volatility in the price of palm oil in the international level, coupled with dearth of seedlings for planting is another major reason for the decline in operational performance.”
Okomu Oil’s profit for the nine months through September 2013 dipped by 57 percent, to N1.61 billion from N3.78 billion a year earlier, it said Dec.5. Sales fell by 15 percent to N6.78 billion.
Presco’s profit in the nine months through September 2013 shrank by 11 percent to N1.65 billion, from N1.68 billion a year earlier, Presco said Oct.30. Sales declined 6 percent to N6.48 billion.
Presco, in a statement released October last year, blamed the crimp in sales to an 18 percent decline in the price of palm oil traded in Malaysia since the start of 2013.
To consolidate its market leadership, the company plans to expand into rubber plantations in Nigeria in 2014.
Palm oil shortagesin Nigeria gave Presco a chance to become the market leader in the country, according to Primera Africa Securities Ltd, a stock broking firm, while commenting on the company’s impressive stock price in December.
The firms (Okomu and Presco) reported a 103 percent spike in finance costs to N408.53 million in the nine months period to September 2013 compared to the year-earlier. Operating expenses surged by 16 percent to N3.28 billion.
Some analysts are of the view that the huge interest expense of Okomu which spiked by 861 percent may have resulted from a N1.77 billion agricultural loan agreement the company incurred last year.
However, the Nigeria Oil Palm and rubber industry will be receiving a remarkable boost as Okomu is planning on building the biggest oil mill in Africa, with a view to strengthening its leadership in the oil palm and rubber industries on the African continent.
The above was made known by the chairman of the company, Gbenga Oyebode, while addressing shareholders at the 33rd annual general meeting in June 2013.
“The expansion programme would greatly boost yields from its oil palm and rubber plantations and grow the revenue of the company,”said Oyebode.
According to Index Mundi, a data portal, the domestic palm oil produced by Nigeria totaled 850,000 metric tons in 2012. This figure represents 1.7 percent of the total world production of 50.20 million metric tons (excluding palm kernel oil) 2012-2013.
Analysts have called for more private sector participation in the Agric sector as the country’s global ranking dwindles.
Minister of State for Industry Trade and Investment, Samuel Ortom lamented that Nigeria now ranks 26th in the world production of palm oil and hardly satisfies domestic demand.
He made this observation during a three-day first International Palm Produce Conference (IPPC) last year in Uyo Akwa Ibom State.
“The inability of meeting local demand in palm oil production was a clear indication that the fortunes of the Palm Oil Sub-Sector have declined significantly,” Ortom said.
The nation plans to increase oil palm production by distributing 13.5 million oil palm nuts to farmers, Akinwunmi Ayo Adesina, minister of agriculture and natural resources, said in 2012.
“The goal is to support the production of a total of 240,000 hectares of oil palm in the next three years by small local farmers and estates,” said Adesina.
Palm oil prices could hit a more than one-year high at 3,000 ringgit ($930) per ton by March 2014, rising faster than previously expected on strong demand from the biofuel industry, leading analyst Dorab Mistry said on Bloomberg Nov.19, 2013.
Nigeria, Africa’s leading crude producer and most populous nation ranks behind Malaysia and Indonesia as the world’s largest oil palm producer, according Food and Agriculture Organization of the United Nations (FAO)
Okomu stock which closed trading at N42.69 on Jan. 28 has gained 70.35 percent in one year; Presco has gained by 37 percent to close at N44.
An analyst who preferred to remain anonymous said that some foreign companies import oil palm into the country as it is cheap over there.
This affects local industries “And it’s against govt policy of encouraging local production” he said.
“Downward trends in harvests as a result of floods, or insect attacks on farms could affect sales; furthermore, these companies may have borrowed money to finance huge expansion, thus paying interest, thereby slowing profits,” said an agriculture analyst in a telephone interview with BusinessDay.
“Volatility in the price of palm oil in the international level, coupled with dearth of seedlings for planting is another major reason for the decline in operational performance.”
Okomu Oil’s profit for the nine months through September 2013 dipped by 57 percent, to N1.61 billion from N3.78 billion a year earlier, it said Dec.5. Sales fell by 15 percent to N6.78 billion.
Presco’s profit in the nine months through September 2013 shrank by 11 percent to N1.65 billion, from N1.68 billion a year earlier, Presco said Oct.30. Sales declined 6 percent to N6.48 billion.
Presco, in a statement released October last year, blamed the crimp in sales to an 18 percent decline in the price of palm oil traded in Malaysia since the start of 2013.
To consolidate its market leadership, the company plans to expand into rubber plantations in Nigeria in 2014.
Palm oil shortagesin Nigeria gave Presco a chance to become the market leader in the country, according to Primera Africa Securities Ltd, a stock broking firm, while commenting on the company’s impressive stock price in December.
The firms (Okomu and Presco) reported a 103 percent spike in finance costs to N408.53 million in the nine months period to September 2013 compared to the year-earlier. Operating expenses surged by 16 percent to N3.28 billion.
Some analysts are of the view that the huge interest expense of Okomu which spiked by 861 percent may have resulted from a N1.77 billion agricultural loan agreement the company incurred last year.
However, the Nigeria Oil Palm and rubber industry will be receiving a remarkable boost as Okomu is planning on building the biggest oil mill in Africa, with a view to strengthening its leadership in the oil palm and rubber industries on the African continent.
The above was made known by the chairman of the company, Gbenga Oyebode, while addressing shareholders at the 33rd annual general meeting in June 2013.
“The expansion programme would greatly boost yields from its oil palm and rubber plantations and grow the revenue of the company,”said Oyebode.
According to Index Mundi, a data portal, the domestic palm oil produced by Nigeria totaled 850,000 metric tons in 2012. This figure represents 1.7 percent of the total world production of 50.20 million metric tons (excluding palm kernel oil) 2012-2013.
Analysts have called for more private sector participation in the Agric sector as the country’s global ranking dwindles.
Minister of State for Industry Trade and Investment, Samuel Ortom lamented that Nigeria now ranks 26th in the world production of palm oil and hardly satisfies domestic demand.
He made this observation during a three-day first International Palm Produce Conference (IPPC) last year in Uyo Akwa Ibom State.
“The inability of meeting local demand in palm oil production was a clear indication that the fortunes of the Palm Oil Sub-Sector have declined significantly,” Ortom said.
The nation plans to increase oil palm production by distributing 13.5 million oil palm nuts to farmers, Akinwunmi Ayo Adesina, minister of agriculture and natural resources, said in 2012.
“The goal is to support the production of a total of 240,000 hectares of oil palm in the next three years by small local farmers and estates,” said Adesina.
Palm oil prices could hit a more than one-year high at 3,000 ringgit ($930) per ton by March 2014, rising faster than previously expected on strong demand from the biofuel industry, leading analyst Dorab Mistry said on Bloomberg Nov.19, 2013.
Nigeria, Africa’s leading crude producer and most populous nation ranks behind Malaysia and Indonesia as the world’s largest oil palm producer, according Food and Agriculture Organization of the United Nations (FAO)
Okomu stock which closed trading at N42.69 on Jan. 28 has gained 70.35 percent in one year; Presco has gained by 37 percent to close at N44.
An analyst who preferred to remain anonymous said that some foreign companies import oil palm into the country as it is cheap over there.
This affects local industries “And it’s against govt policy of encouraging local production” he said.