Flour Mills: Profit weakens on increased finance cost

by Iheanyi Nwachukwu

July 6, 2017 | 12:34 am
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The audited financial statement of Flour Mills of Nigeria Plc for the year ended March 31, 2017 has been released at the Nigerian Stock Exchange (NSE). The group revenue grew by 53.09percent to N524.464billion from N342.586billion in 2016.

The reporting entity/activities 

Flour Mills of Nigeria Plc was incorporated in Nigeria as a private limited liability Company on September 29, 1960 and was converted to a public liability company in November 1978.

Flour Mills of Nigeria Plc group primarily engages in flour milling, production of pasta, noodles, edible oil and refined sugar, production of livestock feeds, farming and other agro-allied activities, distribution and sales of fertilizer, manufacturing and marketing of laminated woven polypropylene sacks and flexible packaging materials, operation of terminals A and B at the Apapa Port, customs clearing, forwarding agents, shipping agents and logistics.

The results

In the review financial year, the group reported 50.11percent growth in Cost of Sales from N304.961billion to N457.775billion, directly attributable to the production of the group’s goods or supply of its services.

Gross profit at N66.689billion in the review financial year indicates 77.25percent growth from N37.624billion in 2016. Selling and Distribution Expenses also increased by 6.74percent to N5.341billion from N5.003billion in 2016; while Administrative Expenses jumped by 16.23 percent to N18.419billion from N15.848billion in 2016.

Also, Flour Mills of Nigeria Plc group reported net operating losses of N1.488billion, a decline of 80.72percent, from N7.720billion in 2016; while operating profit grew by 357.79percent to N41.439billion against N9.052billion in 2016.

In the review financial year, the group recorded no gain on disposal of investment in associate compared to N23.731billion earned in 2016 on same; while its investment income increased by 41.58percent to N1.562billion from a low of N1.103billion in 2016.

The group Finance Costs which spiked by 45.23percent to N32.529billion from a low of N22.397billion in 2016 contributed in weakening the Profit Before Taxation (PBT) by 8.85percent to N10.472billion from N11.489billion in the preceding year.

The company reported net income tax expense of N1.636billion against net income tax credit of N2.931billion in 2016. The group profit for the year moderated to N8.836billion, a 38.72percent decline against 2016 profit of N14.420billion.

The group Total Assets grew by 39.74percent in the review period to N482.603billion from N345.348billion in 2016; while shareholders’ fund increased by 7.08percent to N102.544billion from N95.765billion in 2016. Earnings Per Share (EPS) dropped by 45.55percent to N3.03 from N5.57 in 2016.

Trading information

Flour Mills of Nigeria Plc is listed under the Food Products subsector of the Nigerian Stock Exchange consumer goods sector. The company’s market capitalisation stood Tuesday at N70.854billion with 2,624,237,187 shares outstanding. The share price at N27 had reached a 52-week high of N29.50 and 52-week low of N16.20. In the first-half (H1) of 2017, the shares outperformed the NSE ASI with record 46percent gain.


Following the performance of the company in the financial year to March 31, 2017, the directors of Flour Mills of Nigeria Plc will at the company’s forthcoming annual general meeting recommend to shareholders the declaration of a total of N2.62billion (2016: N2.62 billion) representing a dividend of N1 (2016: N1) per ordinary share of 50 kobo each. This dividend is to be declared out of accumulated pioneer profit.

Ownership structure

According to the Register of Members on March 31, 2017, apart from Excelsior Shipping Company Limited with 1,369,231,166 (2016: 1,369,231,166), representing 52.18percent of the paid up share capital, no other individual shareholder held up to 5percent of the issued share capital of the Company. Other individuals and institutional shareholders held 1,255,022,022 representing 47.82percent of the company’s paid up share capital.

Analysts view on the result

“The   company   reported   a   fairly   decent   outing   which   was disappointingly stifled by increased cost of sales and finance cost during the period”, said research analysts at Capital Bancorp Plc in their recent commentary on the results. 

The analysts said revenue increase was majorly as a result of increased production output in Flour Mills production factories as well as the increase in all its product prices.

“Analysis of  its  revenue  segments  indicate  that  all  contributors  to revenue  base  impressed  for  the  period  with  exception  to  its port  operations  and logistics segment which declined by 87.85percent. Short term rating for the company shares suggests a BUY position with a revised target price of N31.01 (previous target price: N23.53) as we expect the company’s operations to improve on the back of moderation in cost of sales and stability in financing its debt obligation in the medium to short term.

“High  cost  of sales remains a burden  to revenue; having continued to suffer from the  erratic  changes  in  global  supply,  import  tariffs  and  barriers  as  well  as  the significant  volatility  of  the  naira  in  the  last  calendar  year,  this  various  factors  were evident in the company’s cost of sales to revenue for the period in view. Overall, our expectation for FY’18F is for the company to report a much decelerated cost of sales to revenue margin as the variables responsible for the continuous increase in cost of sales have continued to ease bringing a sign of relief to companies in the manufacturing business,” analysts at Capital Bancorp Plc further noted.“The proposed dividend is around 30percent lower than our N1.43 forecast and 41percent lower than consensus. The dividend per share (DPS) translates to a dividend payout of around 30percent. In terms of the topline, the foods business which contributed around 80percent to sales grew by around 51percent year-on-year (y/y) on a full year basis. However, the agro-allied business which accounts for around 15percent of sales grew faster, by 72percent y/y”, said research analysts at Lagos-based FBNQuest in their first reaction to the results.

Pending comments from management, the analysts believe that the topline growth benefited slightly more from price increases as opposed to volume growth. “We also believe that unit volumes, particularly those in the foods division benefitted from consumers down-trading to cheaper domestic brands,” the analysts added.

Though their estimates are under review, but following the results, the research analysts at FBNQuest rated the shares of Flour Mills of Nigeria Plc “outperform”, meaning that they expect the stock to outperform the Nigerian Stock Exchange (NSE) All Share Index (ASI) over the next 12 months or within their specified investment horizon.

“Year-to-date (Ytd), Flour Mills of Nigeria Plc shares have outperformed the market. The shares have gained 46percent compared with 21.9percent for the ASI. Given that its full year 2017 PBT came in behind consensus PBT forecast of N12.4bn, we expect to see some profit taking and downward revisions to consensus 2018 PBT forecasts. In terms of outlook, Bloomberg consensus wheat forecasts indicate that prices are expected to rise marginally by around 4percent through Q4 2017 (end-Dec). As such, the company still faces downside risks”, said FBNQuest analysts.

 Iheanyi Nwachukwu

by Iheanyi Nwachukwu

July 6, 2017 | 12:34 am
  |     |     |   Start Conversation

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