Flour Mills profit surges on gain on disposal of investment

Flour Mills Nigeria Plc, the country’s biggest miller by market value had profits catapulted by proceeds from the disposal of investment in an associate, an impressive result that means the company outperformed peers amid a weak economy.

For the first nine months through December 2015, Flour Mills’ net income surged by 477.50 percent to N19 billion from N3.29 billion the previous year.

Sales increased by 7.90 percent to N263.68 billion despite weak consumer discretionary spending.

The growth at the top lines was a result of an exceptional item of N23.73 billion as the company’s reaps the dividend of a stake sale of Lafarge Plc last year.

Lafarge Africa in November agreed to purchase Flour Mills’ 30 percent holding in United Cement Co. of Nigeria.

Analysts say the performance of the largest miller amid economic doldrums shows its management and boards of directors are bent on maximizing the value of shareholders.

Africa’s biggest economy is facing a squeeze in consumption as the nation of more than 170 million people suffers from a slump in crude oil prices.

In order to curb inflation and protect the economy from continued drop in oil price, the central bank imposed trading restrictions and banned importers from using the foreign-exchange market for about 40 items.

The edicts have made it difficult for Flour Mills and its peers to import raw materials and obtain dollars needed to operate in a tough and unpredictable environment.

Nigeria’s consumer inflation was at 9.6 percent year-on-year in December, up 0.1 percentage points from October, and staying above the central bank’s target upper limit, data from the national bureau of statistics show.

Nigeria’s economic growth slowed to 2.84 percent in the third quarter of 2015 from 6.23 percent a year earlier as a result of lower oil prices.
Despite the faltering economy, Flour Mills net margin, a measure of profitability and efficiency, increased to 7.25 percent in 2015 as against 1.30 percent in 2014.

Gross profit increased by 11.01 percent to N27.68 billion, which means the company effective in managing direct costs attributable to projects. Gross profit margin was 10.49 percent.

Further analysis of the company’s financial statement showed cost of sales jumped by 7.60 percent to N236 billion in 2015 from N219.35 billion in 2014. Cost of sales ratio was flattish at 89 percent in the period under review.

Millers in Africa’s largest oil producer often have high fixed costs due to bad roads, depreciations and impairment on assets, and huge energy costs.

The company’s finance costs increased by 13.43 percent to N17.40 billion in 2015 compared with N15.33 billion in 2014.  Total assets fell by 4.42 percent to N327.66 billion.

Flour Mills share price closed at N19.88 while market capitalization was N52.17 billion.

BALA AUGIE