Okomu Oil Palm Company Plc - Cost reduction strategy improves performance


Thursday, November 20, 2014 11.35 AM / DLM Research

9M14 revenue grows by 1.6% y/y… In the nine months period to September 2014,
Okomu Oil Palm recorded an increase in revenue to N6.90billion, up by 1.6% compared with N6.79billion in the previous year. Also, the company reported revenue of N2.03billion in 3Q2014, i.e. a decline of 33.2% compared with N3.04billion in the second quarter of the review year but an increase of 3.7% compared with N1.96billion in 3Q2013. The third quarter revenue is lower than 8-quarter average of N2.24billion by 9.5%; similarly, it is also lower than our estimate of N2.10billion by 3.1%.

Furthermore, the revenue growth rate recorded in the review period mirrored an increase of 1.6% in the average prices of Crude Palm Oil (CPO) to US$768.10/metric tonne in the global commodity market in the nine months to September 2014, against the average prices of US$755.80/metric tonne in the corresponding period of 2013 (fig.6). Nevertheless, the average prices of rubber – another major product of the company – declined by 28.2% to US93.85¢/lb compared with the average prices of US130.80¢/lb in 2013 (fig.7). However, the Economic Intelligence Unit (EIU) forecasted average prices of US$847.50/metric tonnes and US$754.50/metric tonne for Crude Palm Oil in 2015 and 2016 respectively. Also, the average price of Rubber was forecasted to US103¢/lb and US113¢/lb for 2015 and 2016 accordingly. On the back of this, we do not expect significant improvement in revenue in the quarters ahead except there is increase in sales volume.

…while input costs declines by 6.2%. For the review period, Okomu Oil Palm’s cost of sales (COS) of N2.94billion was down by 6.2% y/y compared with N3.13billion in 2013 in spite of the increase in revenue. The inverse relationship in the movement in both revenue and COS led to a decline in COS/revenue ratio to 42.5% relative to 46.1% in 2013.


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