Okomu Oil is one of Nigeria’s oldest and largest agriculture-based companies. It is majorly owned by SOCFINAF SA, a Belgian company with 62.69% controlling stake in the company’s 953.9 million ordinary shares. No Other shareholder owns more than 5% of the company. SOCFINAF also owns several oil palm plantations across Africa especially in countries like Ivory Coast, Cameroon, Congo, Ghana, Liberia, and Sierra Leone. It also has business interest in Indonesia and in Europe.
The company recently reported a pre-tax profit of N3 billion in the first quarter of 2020 representing an impressive 150% jump from same period 2019. The result is also in line with analysts expectation that Nigeria’s agricultural sector will reap bountifully from the 2020 covi-19 pandemic. Its impressive results have helped catapulted its share price from below N60 to over N70 per share in three months. The relationship between performance and share price is easy to comprehend.
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However, looking beyond the company’s impressive first quarter result, one observes another interest relationship, that between its majority shareholders and Okomu Oil. In accounting, this term is called related party transactions. According to IAS 24, the accounting standard that governs related party transactions, a related party is a person or entity that is related to the entity that is preparing its financial Statements. For Okomu Oil, its related party transactions with its majority shareholder is worthy of mention.
Okomu Oil sells two main products, Crude Oil Palm and Rubber. It exports the latter, while COP is mainly sold locally. To export rubber Okomu Oil relies heavily on its related company, SOGESCOL FR SA . It sells all of its rubber to SOGESCOL FR SA who then goes on to sell to buyers in the world market. Total sales for 2019 alone was N2.9 billion. Okomu Oil claims this transaction is at arms-length.
Okomu Oil also reports that SOCFINCO FR another related party “has exclusive rights to know-how and manages the affairs of the company”. It also reveals that in exchange for obtaining this know-how from SOCFINCO FR, Okomu Oil pays technical fees “at an aggregate rate equal to 3% of the company’s net sales and management fees are 3% of profit before tax”. These fees cost the company about N882 million and N933 million in 2019 and 2018 respectively. The figures are net of taxes. These are all contained in page 65 of its 2019 annual reports. We are not done.
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SODIMEX FR another related party of Okomu Oil also sells “a large amount of its equipment and spare parts” to Okomu Oil in a transaction value worth about N380 million in 2019 (N688 million in 2018). It also claims these transactions were all at arms-length. Another interesting related party transactions is the sale of palm seeds from SOCFINDO SA, yet another related company. In 2018 Okomu Oil boughtN20.3 million of palm seeds but zero in 2019. It also purchases mucuna seeds from another related company, SOCFIN Agricultural Company, though zero sales were recorded in the last two years.
Two Nigerian owned related companies, INDUSERVICES FR and Perfect securities sell internet services and building construction services respectively to Okomu Oil. On its website, PERFECT SECURITY SERVICES LIMITED says it provides a wide range of security and other security related services, consultancy, risk management, training services to organizations, institutions and private individual and those in the public sector. In 2019, Perfect Securities carried out “building construction services” for Okomu Oil worth about N13.9 million.
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It is important to note that the entirety of these transactions are legal and permissible provided it is all at arms length as the company confirms they are. However, the breadth of the related party transactions if for nothing reveals just how much control SOCFINAF, its Luxembourg based majority ultimate shareholder has over the entity.
Should shareholders be worried? Well, considering that the company pays dividend every year and has a knack for issuing bonus shares once every decade, there is little to be worried about from a shareholder’s perspective. Suffice to add that its share price has risen more than 170% in the last 5 years and seem poised to deliver on capital gains.
Thus, for now, we can only watch in awe as the company continues to foster its relationship with its majority shareholders and hope that all that starts well ends well.
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