Global Crude Palm Oil Price decline crimps Okomu’s growth

The declining price of crude palm oil has held back the growth potentials of Okomu Oil Nigeria plc, as it ended 2014 with a one-two punch in sales and profits, analysis of the company’s financial statement shows.

For the year ended December 2014, Okomu’s net income fell by 25.83 percent to N1.55 billion from N2.09 billion the same period of the corresponding year (FY) 2013. Sales reduced by 2.37 percent to N8.67 billion.

This result defers analysts expectation that a rebound price of Global Crude Oil price (CPO) and rubber, which dipped by 12.97 percent and 5.70 percent, respectively, in the third quarter of 2014 relative to the second quarter of 2014, will help spike growth of Okomu.

Pending management comments, the sluggish growth in the last quarter of 2014 can be attributed to the dwindling price at the international level.

Nigeria’s largest palm oil producer could not control direct costs attributable to projects as gross profit reduced by 4.44 percent to N4.76 billion in 2014 as against N4.98 billion in 2013, while gross margin dipped to 55.02 percent in 2013 from 56.20 in 2014.

Net margin reduced to 17.91 percent in the review period from 23 percent as of December 2013.

Analysts said aside from the volatility in price of the commodity, the tough operating environment firms operate in where huge energy costs due to reliance on diesel oil, which is an expensive source of power compared with the one from grid, continued to stunt growth of palm oil producers.

The influx of cheap oil price, which has been hampering local producers for a period of time remains a drag on top-line growth.

These challenges require urgent moves by policy makers in order to revamp a sector that was a major driver of the Nigeria economy in the sixties.

Nigeria, Africa’s leading crude producer and most populous nation, ranks behind Malaysia and Indonesia as the world’s largest oil palm producer, according to the Food and Agriculture Organisation (FAO).

The unimpressive performance of local oil palm producers is casting doubts on the country’s ability to reclaim its position as a global leader in palm oil production. Nigeria, which once controlled up to 43.5 percent of the world’s total output of palm oil in the 1960s, is now a net importer of palm oil.

Further analysis of Okomu’s audited financial statement showed the company was cost efficient as cost of sales increased by 1 percent while cost of sales margin remained flattish at 44 percent.

Operating expenses were up by 9.32 percent to N2.58 billion in 2014 as against N2.36 billion, as of December 2013.

The company had a weak liquidity position as current ratio, which measures the ability of a firm in meeting its short-term obligation, reduced to 0.26 times in 2014 from 1.76 times in 2013.

This flattering liquidity position was caused by a bank overdraft balance of N1.52 billion in the balance sheet from a cash balance of N1.18 billion last year.

Return on equity (ROE) fell to 6.67 percent in 2014 as against 9.27 percent in 2013, which means the company had not been using shareholders’ resources in generating higher profit.

Okomu’s share price closed at N26.01 on the floor of the exchange, while market capitalisation was N24.44 billion.