Okomu Oil Palm Company is one of the top-two palm oil producers in Nigeria, having commenced agricultural production in 1979. Located in Benin City in Edo State, Okomu has gone from solely producing fresh fruit bunches to crude palm oil (CPO). In addition, it fully kicked off rubber production in 2008. With a total plantation area of over 18,000 ha, Okomu had an output of around 43,000 tonnes of palm oil and 7600 tonnes of rubber in 2015. Okomu also benefits from the management and experience provided by its main shareholder and technical partner, Belgian firm SOCFIN, which has a 62% stake in the company.
Palm oil consumption in Nigeria currently outstrips domestic supply. As such, the country relies on imports of up to 500,000 tonnes versus demand of 1.5m tonnes. The Nigerian palm oil industry is fragmented, with the biggest producers, Okomu and Presco, accounting for just 7% of production in the country. Due to dwindling reserves and the need to encourage local production, in 2015 the Central Bank of Nigeria (CBN) banned the sale of foreign exchange via the official window to palm oil importers. This should result in a gradual increase in the price of locally produced palm oil.
Financial Performance
In the first quarter of 2016 sales grew by 37% year-on-year (y-o-y) to N3.3bn ($10.4m), while profits before tax (PBT) and after-tax profits of N1.64bn ($5.2m) and N1.6bn ($5.1m), respectively, were up 38% and 55% y-o-y. A breakdown of the results shows that sales of palm oil grew 51% y-o-y to N3bn ($9.5m), while rubber sales declined by 21% y-o-y to N364m ($1.1m) in that quarter. Going back to the combined results, despite gross margins contracting by 802 basis points y-o-y to 84% and operating expenses growing 17% y-o-y, PBT grew by a similar margin to sales due to a 49% y-o-y decline in net finance charges. However, after-tax profits grew by a wider margin due to a lower tax rate of 2.4%, compared to 12.8% in the first quarter of 2015.
While sales grew by 13% y-o-y in 2015, PBT and after-tax profits advanced by greater margins of 52% and 85% y-o-y, respectively. Okomu also declared a dividend of N0.10 ($0.0003) per share, implying a dividend yield of 3% and a pay-out ratio of 4%. Despite higher earnings y-o-y, the dividend declared is 60% lower than what was paid in 2014. Although smuggling of CPO from neighbouring countries persists and the supply deficit is still significant, local palm oil companies have been able to boost their revenue and earnings by aggressively expanding their plantations and increasing volumes. The twin impact of the naira devaluation and the CBN’s restriction on the availability of foreign exchange for importing CPO may have helped Okomu grow its top line in recent quarters as palm oil imports by competitors have become more expensive. In 2015 Okomu produced 42,868 tonnes of CPO, up 35% on the previous year.
Development Strategy
Nigeria’s new administration is committed to reducing the importation of items that can be produced locally and promoting self-sufficiency in food production. For the palm oil sector, opportunities for growth abound, as there is still a huge area available for oil palm cultivation in Nigeria and a significant consumption gap to fill. Okomu cleared about 4000 ha of land for oil palm cultivation in 2015; another 4000 ha is expected to be prepared in 2016. The firm has also indicated that it expects to cultivate an additional 12,000 ha of oil palm within three years. Okomu has benefitted from its diversification into rubber which occurred before 2008. In 2011 the rubber business accounted for 40% of the company’s revenue. Due to unfavourable pricing, sales have declined, and rubber’s contribution to the top line reached as low as 20% in 2015. In the near term there is no sign of significant recovery in rubber prices. Okomu has also hinted that rubber volumes are likely to be subdued in 2016. As such, the firm will likely keep focusing on growing its palm oil volumes.
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