Flour Mills Nigeria (FMN) in its half-year (H1) financial results for the period ended 30th September 2022 has reported its lowest profit margin in ten (10) years, on the back of rising input costs and foreign exchange (FX) losses which have put a strain on the firm’s profitability.
The first profit margin declined by 122 basis points to 0.79 percent in the first half of 2023 from 2.01 percent in the first half of 2022.
The firm’s revenue grew by 37.83 percent in the first half of 2023 to N720. 58 billion from N522.82 billion in the corresponding period of 2022.
Quarter on quarter (q/q), revenue was up 12.2 percent to N380.98 billion in the second quarter (Q2) from N339.6 billion in the first quarter (Q1).
The Food business remains the major revenue driver, contributing 61.8 percent (N445.67 billion) to total revenue. Revenue from the food business grew by 32.1 percent year on year (y/y) and 9.1 percent q/q.
The agro-allied segment contributed 21.4 percent (N153.90 billion) and grew by 52.3 percent y/y and 34 percent q/q while revenue from sugar sales increased by 10.3 percent y/y but declined by -9.8 percent q/q.
Revenue from support services contributed 2.3 percent (N16.34 billion) and grew by 10.3 percent y/y and 83 percent q/q.
The Group stated that “the revenue growth was propelled by a favourable mix and some exchange-related pricing,” further adding that operating performance in the food segment remained solid, notwithstanding a challenging environment with increased input prices and a somewhat softening volume base.
“The sugar segment recorded a significant rebound compared to Q2 2021/22 as anticipated due to a normalized competitive playing field, increased route-to-market expansion into both new and rural markets, and increased customer engagement,” FMN stated.
The cost of sales reported by Flour Mills in its first half of 2023 financial results claimed 90 percent of the firm’s total revenue. It’s the cost of sales also grew faster than revenue by 39.15 percent to N651.8 billion in H1’2023 from N468.4 billion in H1’2022 due to rising prices in raw materials and power costs.
Specifically, raw material costs grew in tandem with revenue, up 38 percent y/y to N583.34 billion while production energy costs rose by 120.75 percent y/y to N25.33 billion.
Selling and administrative expenses also grew by 6.76 percent to N7.9 billion in H1’2023 from N7.4 billion in H1’2022.
Administrative expenses increased by 16.77 percent to N18.1 billion in the first half of 2023 from N15.5 billion in the first half of 2022.
Flour mills reported a net operating loss of N11.98 billion in H1’2023 from N7.93 billion in H1’2022, with foreign exchange loss being a major driver of the total operating loss in the period.
Foreign exchange loss dipped further by 108 percent to N19.74 billion in the first half of 2023 from N9.46 billion in the first half of 2022.
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On account of rising interest rates, finance costs surged by 139.23 percent in the first of 2023 to N22.32 billion from N9.33 billion in the corresponding 2022 as loans and borrowings doubled 112 percent to N316.39 billion in H1’2023 from N148.83 billion as of December 2022.
Consequently, profit after tax declined by 45.82 percent in the first half of 2023 to N5.7 billion from N10.5 billion in the first half of 2022.
Flour mill’s total assets increased by 73.42 percent to N929.7 billion in H1’2023 from N536.09 billion in H1’2022, while its total shareholder’s equity or funds was down 64 percent to N196.09 billion in H1’2023 from N544.73 billion in H1’2022.
Cash and cash equivalents reported by the manufacturing firm were also down by 21.80 percent in the first half of 2023 to N40.94 billion from N52.35 billion in the same period of 2021.
Analysis of the movement in cash and cash equivalents shows that net cash flow from operations was negative during the period, amounting to N-5.96 billion, down from N28.23 billion in the first half of 2022.
Its net cash flow from investing activities totaled N-42.19 billion in H1’2023 from N-10.99 billion in H1’2022, due to the purchase of property, plant, and equipment, and the acquisition of a subsidiary (Honeywell Flour Mills Plc) during the period.
While it’s net cash flow from financing activities surged by 3,357 percent to N67.41 billion in the first half of 2023 from N1.95 billion in the corresponding period of the previous year.
The surge was largely due to proceeds from borrowings received which amounted to N89.74 billion in the first half of 2023. The firm, however, paid out the sum of N22.32 billion as finance costs during the period.
Commenting on the result and the Group’s strategic imperatives in the years ahead, Boye Olusanya, the group managing director/chief executive officer, said, “FMN continues to meet the needs of the consumers with our sustainable route-to-market structure and new product initiatives across our touchpoints. As we can see in the H1 22/23 report, the sugar segment recorded a significant rebound compared to H1’21/22, a clear demonstration of the Group’s continuous and significant investment in the sugar value chain and across all our key value chains and sectors.
“As the Group continues to make headway in our backward integration activities through various strategic efforts, we remain committed to feeding the nation daily. Also, our investment in product innovation and supply chain optimization was sustained in furtherance of the execution of our long-term strategy.
“As part of the Group’s strategic roadmap, FMN continues to put in place a business continuity plan to safeguard its supply chain and food production processes to ensure that Nigerians can continue to have access to their daily nourishment”.
Flour Mills Nigeria Plc reported earnings per share of N197 per share in the first half of 2023 down from N243 per share in the same period last year.
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