Background
Honeywell Flour Mills Plc. (HFMP) is a major flour milling company in Nigeria and was initially registered as Gateway Honeywell Flour Mills Limited in 1985. HFMP presently has wheat storage capacity of 42,500MT while monthly usage varies from 32,000MT to 40,000MT.
Honeywell Plc, thirsty for expansion, recently commissioned a N10 billion flour mill with an automated warehouse which has the capacity to hold about 100,000 bags of 50kg flour, and is the only one of its kind in Sub Saharan Africa.
The company with a strategic vision/mission statement of giving complete satisfaction to its customers has 7.93billion shares outstanding with shareholders fund standing at N18.29 billion as at 30 September 2013.
Financial Performance for Third Quarter 2013
Honeywell flour mills for the nine months through September 2013 grew revenue by 27 percent to N27.86 billion compared to N21.94 billion recorded in the corresponding period of September, 2012. The company’s cost of sales for the third quarter of 2013 increased by 26 percent to N23.01 billion compared with N18.21 billion recorded in the corresponding period Q3 2012.
Effective cost control should be intensified by the company in order to reduce cost of production although gross profits increased by 26.60 percent to N4.80 billion for the third quarter 2013 from N3.73 billion the previous year. Selling and distribution expenses for the current period of September 2013 (Q3) 2013 rose by 51.84 percent to N2.95 billion while operating profits were up by 8 percent to N2 billion. Profits before tax of the company were down by 26 percent to N1.32 billion for the nine months period to September 2013 compared with N1.79 billion the previous year.
The decline in pre-tax profit of the company could be attributed to huge finance cost in its capital structure as net finance expense soared by 1138 percent to N669 million as from N55 million the previous year. Honeywell reported profit after tax of N1.0 billion for the nine-month period to September 2013, a deflation of 23 percent Year-on-Year (YoY), from N1.31 billion as at third quarter (Q3) 2012. The high interest payment by the company has also affected its earnings after tax as it reduced by 25 percent to 12.68k in Q3 from 16.51k recorded in the corresponding period of 2013.
Share Performance and Outlook
Honeywell has been able to magnify the investments of shareholders as the share price increased year on year (YOY) by 70 percent to close at N3.57k on the floor of the Nigeria Stock Exchange (NSE). Investors’ confidence in the firm is strong as they are ready to pay more for the company’s sales as it recorded a price to sales ratio of 1.52. Honeywell has been pursuing a steady dividend policy has it just paid N1.27 billion dividends on ordinary shares to the owners of the company.
Honeywell had a market capitalisation of N28.3 billion as at December 27, 2013. The company should expect higher patronage for its products as a result of increase in purchasing power of consumers which will in turn spike consumption rate. Nigeria inflation rate which is expected to remain below 8 percent while the price of wheat would decline by 8.57 percent according to International Monetary Fund (IMF) commodities price indices (CDI).
