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Flour mills consolidate market leadership as Q3 2013 revenue surge 16.8 percent

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Background

Flour Mills Nigeria Plc was incorporated in September 1960 as a private limited liability company, and commenced operation in 1962 with an installed capacity of 600 metric tons per day.

The company has invested over N25 billion in mining infrastructures over the last seven years, to maintain its competitive advantage.

The company was converted to public limited liability in 1978; moreover, it has 2.38 billion shares outstanding with shareholders fund standing at N85.0 billion as at Q3 ended December 2013.

Financial Performance for September 2013

Flour mills Nigeria Plc (FMNL) in the nine months ended December, 2013 grew revenues by 16.8 percent to N240.18 billion from N205.51 billion in the comparable period of 2012.

With the sales figure mentioned above, places FMNL the market leader as it has the largest production capacity and turnover ahead of its peer rivals in the Fast Moving Consumable goods (FMCG) industry.

Moreover, the increase in revenues emanated because the company moderated cost of sales by 20.3 percent to N215 billion.

 However, gross profit declined marginally by 6.5 percent to N24.36 billion, thus, gross profit margin fell to 10.14 percent from 12.6 percent recorded last year.

The reason for the shrinking gross margins arose from raw material price pressures and higher import duty on wheat which has been constraining bottom line growth.

The total operating expenses were N12.28 billion, 20.2 percent above N10.21billion recorded in the erstwhile year results.

In the period under review, finance cost soared by 19.4 percent to N10.57 billion. Consequently, profits before tax (PBT) were down by 27.5 percent to N8.35 billion as against N11.53 billion in the comparable period of 2012.

The drop in profitability of the company affected its net margin as it reduced to 7.8 percent Q’3 2013 from 10 percent Q’3 2012.

What this means is that the company was able to accrue N7.80 to the profit position for every N100 earned in 2013, down from N10 in 2012.

Return on assets (ROA) followed a similar pattern. ROA for the year dipped marginally to 2.11 per cent from 3 per cent in 2012.

This implies that of every N100 worth of assets deployed contributed N2 to after-tax profit for the year, lower than the N3 recorded in 2012.

 The company’s return on equity shrank to 7.0 percent in 2013 from 9.7 percent in 2012, to indicate that the company contributed N7 on N100 after-tax profit in 2013.

 Earnings per share EPS fell to 217k in the third quarter to December 2013 from 319k Q3’2012.

The debt to equity ratio increased to 143 percent in 2013 from 139.3 percent in 2012.

 Share Performance and Outlook

Flour mills Nig. Plc share price on the Nigeria Stock Exchange (NSE) increased over the past year by 9.9 percent to close at N82.5 on Friday.

The company has a price to sales ratio of 0.678 making it attractive to investors as they are willing to pay a high price for its sales.

 The market capitalization of N196.8 billion as at Feb.21 2013 makes the company the biggest miller by market value.

Opportunities abound for Flourmills to consolidate its market leadership as the Nigeria economy is expected to expand by 7 percent in 2014 from 6.7 percent in 2013 according to FBN Capital an investment and research firm in a note released in January 2014