NORTHERN NIGERIA FLOUR MILLS: Cost savings lift profit

Northern Nigeria Flour Mills Plc engages in the flour milling business. The company produces wheat flour, which is used primarily by bakeries to produce bread, cakes, and pastry; and semovita that is made from hard wheat blends. It also provides wheat offals and masaflour. The company was incorporated in 1971 and is based in Kano, Nigeria. Northern Nigeria Flour Mills Plc is a subsidiary of Flour Mills of Nigeria Plc.

For the past five years, Northern Nigeria Flour Mills (NNFM) has been grappling with slow sales despite improvement at the bottom line level. The impressive performance at the bottom line level was helped by effective cost control mechanisms put in place  by the savvy management and board of directors  of the company.

It should be noted that the volatility in major world currencies coupled with the instability in oil prices due to the political upheaval and uprising in North Africa and the Middle East compounded dampened the company’s growth prospects.

Reduced production costs boost gross profit as sales dips.

For the first nine months through September 2014, the company’s revenue dipped by 17.85 percent to N5.75 billion from N7 billion the same period of the corresponding year (Q3) 2013.

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The continuous receding sales are attributable to the security challenges in the north part of the country where the company is located. This has prevented NNFM from pushing its products across the borders.The company also  lost significant market share due to  pressured consumer wallets.

Additionally, the reduction by 49.78 percent in cash receipt from customers also contributed to the contraction sales in the review period.

Cost of sales in the review period reduced by 20 percent to N5.44 billion as against N6.80 billion the preceding year. There was an improvement in the management of direct costs attributable to projects as gross profit fell by 60.72 percent to N304.61 million compared with N189.46 million the preceding year.

It should be noted that despite improved input cost, cost margins were high, which culminate in low profit margins (see table 1).

Increase in Operating and pretax profit amid Tough operating environment.

The company’s costs saving mechanisms are commendable given infrastructural deficits which bedevils businesses in Africa largest and populous country Nigeria. Such impediments include bad roads and inadequate public power supply that spiral overhead costs.

NNFM’s operating income growth of 31.89 percent to N203.86 million from N163.27 million the preceding year is a reflection of the company’s ability to effectively use focus strategy in meandering the economic turbulence in the Nigeria operating environment.

Operating expenses were down by 6.07 percent to N160.86 million in the review period compared with N171.26 billion the same period of the corresponding year 2013.

Strong asset position fueled by surge in cash and deposits

Total assets increased by 35.58 percent to N4.42 billion in Q3 2014 compared with N3.26 billion the last year fueled by a 293.25 percent surge in cash and deposit to N2.07 billion from N526.38 million the preceding year.

Total shareholder’s equity also increased by 6.21 percent to N1.88 billion as against N1.77 billion thanks to a 6.9 percent increase in retained earnings to N1.70 billion.

Total inventories in the review period increased by 22.78 percent to N1.22 billion from N1.58 billion the preceding year while trade and other payables moved by 99.07 percent to N2.15 billion as against N1.08 billion the last year.

Northern Nigeria Flour Mills is giving owners of the company a high return on investment as it declared a dividend of 40k per share and also assured shareholders increased dividend in 2015.

BALA AUGIE