THE NATION WEDNESDAY, AUGUST 1, 2012
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THE NATION INVESTORS FACTS
Okomu Oil vs Presco: Harvest of growths
FACTS TO FACTS Turnover growth Gross profit growth Pre-tax profit growth Gross margin Pre-tax profit margin Net profit growth Return on Assets Return on Equity
Okomu Oil 2011 2010 % % 82.7 52 79 136.3 483.1 61.6 62.9 41.9 32.4 140.8 581.6 32.6 18.7 44.4 27.8
TO
FACTS
Average % 67.35 39.5 309.7 62.25 37.15 361.2 25.65 36.1
Pre-tax profit margin (Okomu Oil)
Turnover growth Gross profit growth Pre-tax profit growth Gross margin Pre-tax profit margin Net profit growth Return on Assets Return on Equity
Presco 2011 % 58.5 84.1 93.4 49.6 30.2 54.5 16 36.1
2010 % 34.5 294.7 42.6 24.8 358.2 14.8 31.1
Average % 46.5 42.05 194.05 46.1 27.5 206.35 15.4 33.6
Pre-tax profit margin (Presco)
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KOMU Oil Palm Plc and Presco Plc are the two largest stocks in the agriculture sector. With hectares of palm oil plantations, they represented the vast agriculture potential of Nigeria. Both Okomu Oil Palm and Presco are integrated agricultural companies with oil palm plantations, palm oil mills, crushing plants and oil refining plants. They engage in cultivation of oil palm and extraction and refining of palm oil into finished products. They are major suppliers of specialty fats and oils to several large and medium companies. Besides similarity of business operations, the two companies shared several similarities including the location of their farms in Edo State and substantial foreign shareholdings. They are also companies of nearly the same size and run the same business year. Okomu Oil Palm, the older and the larger of the two companies, was incorporated in 1979 and listed its shares on the Nigerian Stock Exchange (NSE) in 1991, the same year Presco was incorporated. Presco became a public limited liability company and listed its shares on the NSE in 2002. Okomu Oil Palm has market capitalisation of about N15 billion while Presco trailed with N14.7 billion. Altogether, they accounted for more than 90 per cent of the total market capitalisation of the agriculture sector. In essence, they determine the sectoral direction and upswing or downswing reflects the changes in each or both of the stocks. Latest audited reports and accounts of Okomu Oil and Presco for the year ended December 31, 2011, meanwhile, showed striking similarities, with all key indices jumping to new highs. From turnover to profit and returns, both
Stories by Taofik Salako
companies recorded considerably high growths, putting recent average growth for many indices in three digits. The agriculture stocks had bumper harvests, but Okomu Oil maintained its lead on several counts.
Sales generation Okomu Oil Palm grew sales by 83 per cent in 2011, consolidating the top-line performance in 2010 when incomes grew by 52 per cent. Average sales growth in recent years thus stood at 67.4 per cent. Presco also improved on its 35 per cent sales growth in 2010 in 2011, with increase of about 59 per cent in 2011.These indicated average growth rate of about 47 per cent. The top-line performance showed improvement in operating environment and expansive investments by the agriculture stocks.
Profitability Both companies also witnessed considerable improvements in profitability, with significant outward growths and stronger underlying profit-making capacity. Okomu Oil Palm grew gross profit by 79 per cent in 2011 as against an increase of 84 per cent recorded by Presco. With better cost management and negligible financial leverage, Okomu Oil Palm magnified its
top-line performance into threedigit improvement in the bottomline. Profit before tax doubled by 136 per cent in 2011 while profit after tax jumped by 141 per cent in 2011. With 483 per cent and 582 per cent growths in pre and post tax profits respectively in 2010, average growth in profit before tax stood at 310 per cent while average net profit growth stood at 361 per cent. Similarlarly, Presco grew profit by 93 per cent in 2011, in addition to an increase of 295 per cent in 2010, representing average growth rate of 194 per cent. After taxes, net profit rose by 55 per cent in 2011. Net profit had grown by 358 per cent in 2010. Average net profit growth thus stood at 206.4 per cent. There has also been remarkable improvement in the inherent profit-making capacity of the agriculture stocks. Presco’s gross margin improved from 43 per cent in 2010 to 50 per cent in 2011, indicating average margin of 46 per cent. Pre-tax profit margin increased from 25 per cent in 2010 to 30 per cent in 2011. Although Okomu Oil’s gross profit margin slipped marginally from 63 per cent in 2010 to 62 per cent in 2011, pre-tax profit margin improved from 32 per cent to 42 per cent. Average gross profit margin thus stood at 62.3 per cent while average pre-tax profit margin closed 2011 at 37.2 per cent.
Actual returns Returns to shareholders and other stakeholders continued on the upward. Presco returned 16 per cent on average assets in 2011 as against 15 per cent in 2010, indicating average return on total assets of 15.4 per cent over the years. Return on equity-to shareholders who provided the equity funds, also improved from 31 per cent to 36 per cent. Okomu Oil also performed above average during the period. Return on total assets improved to 32.6 per cent in 2011 compared with 18.7 per cent in 2010. Return on equity trended upward from 28 per cent to 44 per cent. Average returns on assets and equity thus stood at 25.7 per cent and 36.1 per cent.
The Bottom-line Agriculture is the dominant sector of the economy. With a land area of 910,768 square kilometres out of a total area of 923,768 square kilometres, Nigeria is largely an agrarian economy with agriculture the largest sector and biggest employer. Nigeria’s arable land use stands at more than 33 per cent. From the North to the South, from West to East, Nigeria’s climate and terrain are suitable to cultivation and breeding. Notable agriculture produce across the regions include Cocoa, Peanuts, Palm oil, Corn, Rice, Mil-
let, Cassava, Sorghum, Yams, Rubber, Cattle Sheep, Goats, Timber, Fish among others. Agriculture has shown considerable resilience during this downturn, sustaining growth that has served as catalyst for Nigeria’s growing Gross Domestic Products (GDP). Government’s fiscal policy measures aimed at encouraging domestic agricultural companies also appeared to be impacting positively on the sector. The Federal Government had in its fiscal policy measures for this year granted several incentives to agriculture sector including a zero duty on agricultural machinery and equipment with effect from January 31, 2012. The new fiscal measures were introduced to support the development of agricultural sector. Also, as part of the encouragements to local farmers, government had indicated it would prohibit importation of cassava flour. Besides, many agricultural companies had benefitted from financial incentives from the Central Bank of Nigeria (CBN), which helped to reduce financial leverage and pressure on the bottom-line. The performance of Presco and Okomu Oil reflects the emerging potential of agriculture stocks, especially farsighted companies with medium-to-long-term investment plans.
Unilever Nigeria records N4b profit in first half
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NILEVER Nigeria Plc recorded a profit before tax of N3.82 billion in the first half as the conglomerate struggled with sluggish top-line and lower margins. Interim report of Unilever Nigeria for the first half ended June 30, this year showed that sales rose by 1.2 per cent to N26.92 billion as against N26.6 billion recorded in comparable period of last year. Gross profit however dropped from N10.13 billion to N9.76 billion. Profit before tax also slipped marginally from N3.93 billion to N3.82 billion. Profit after tax meanwhile inched up to N2.83 billion in 2012 in contrast with N2.71 billion in 2011. Unilever Nigeria had distributed N5.30 billion to shareholders as cash dividends, representing a divi-
dend of N1.40 per share, 27.3 per cent above N1.10 per share paid for the 2010 business year. Audited report and accounts of Unilever Nigeria for the year ended December 31, 2011 showed that turnover rose from N46.81 billion in 2010 to N54.72 billion in 2011, an increase of 16.9 per cent. Profit before tax closed 2011 to N7.98 billion as against N6.15 billion recorded in 2010, representing an increase of 29.8 per cent. Profit after tax also increased by 31 per cent from N4.18 billion to N5.49 billion in 2011. The conglomerate’s shareholders’ funds improved to N9.66 billion compared with N8.34 billion in 2010. Speaking on the prospects of the company, Chairman, Unilever Nigeria, His Majesty Nnaemeka Achebe, said the company has built sufficient structure to ensure sus-
tained growth and returns to shareholders. He said the company has fared well despite the difficult operating environment and assured shareholders that the company would continue to consolidate gains from huge investments in previous years to provide improved returns to shareholders. He pointed out that the strong fundamentals of the company show the success of its growth initiatives and its resilience to sustain growth into the future and deliver improved shareholder value over the years. Citing the positive performance of the company, Achebe said the 27 per cent increase in cash dividends for the 2011 business year was a reflection of the commitment of the company to sustained shareholder value and its investor friendly
policy. “Our company’s performance reinforced its capability to continue to win the hearts of its consumers through brands which create a better future for them every day. Our strong fundamentals attest to the success of our growth initiatives and our commitment to continue to invest into the future and deliver sustained shareholder value,” Achebe said. He pointed out that the company has raised the level of investment in manufacturing capacity, upgraded its plants for better quality and better capacity which would allow it to further drive its internal efficiencies and withstand operating challenges. According to him, 2011 was a proof that Unilever Nigeria has been well positioned to continue its
upward growth trend into the future. The growth initiatives embarked on in 2011 would continue to yield sustained results while the company’s commitment to future investments will enable it to leverage emerging market opportunities. “As a member of the Unilever Group, Unilever Nigeria will continue to deliver products to satisfy the future needs and aspirations of our consumers and develop new way s of doing business that will allow us to double the size of our business while reducing our environmental impact,” Achebe said. He added that Unilever Nigeria would partner with stakeholders to achieve its growth objectives and corporate social responsibility goals urging shareholders to support the company’s aspirations.