Shifting food culture, increased capacity drive Honeywell growth

Aisha Kuta, a 35-year-old house wife and mother of three, says her family enjoys taking pasta made from flour and popularly known as Talia in Hausa language in the Northern part the country.

“A lot of us even prefer the food to our traditional Tuwo Masara, which is made from corn,” she said, while her seven-year-old looks on as his mum is being interviewed by the BusinessDay reporter.

“It’s very delicious and the young generations are shifting taste to the food,” says Kuta.

It is the surge in demand for healthy diet (pasta and wheat) by consumers like Kuta and her generation that is driving the growth of one of the largest millers in Nigeria, Honeywell Flour Mill Nigeria plc, a manufacturer of flour-based product.

For a country that is notorious for infrastructure deficits such as limited power supply that drive up cost and bad roads that hamper production, the company recorded strong growth at both at the top- and bottom-line levels.

For the year ended March 2014, the company’s revenue rose by 20.50 percent to N55.08 billion from N45.71 billion in the same period of the corresponding year (2013FY).

The need to penetrate the market has made some of the firms in the sector increase production capacity, which at the present is more than demand.

Honeywell Flour mills unveiled a N10 billion project in 2013, aimed at expanding its flour mills with a view to boosting production and bolstering performance.

Cost margin was as high as 81 percent, which some analysts attribute to huge material cost attributable to fluctuation in naira as wheat, the major raw material in the manufacture of flour, is imported.

In spite of the challenges caused by the insecurity and spiralling distribution cost, profit after tax surged by 18 percent to N3.35 billion in 20I4FY from N2.84 billion last year.

The increased spending on marketing and distribution channel has culminated in low margins as net margin was as low as 6 percent in the review period.

Interest costs increased exponentially by 257.16 percent to N1.88 billion in 2014FY, compared with N528.34 million the previous year as it paid interest on loans to finance the acquisition facility for the purpose of expansion.

Debt-to-equity ratio moved to 176 percent in 2014, from 167 percent in 2013, which means the company is highly geared and also uses lenders money to finance over 150 percent of its balance sheet.

The growth in purchasing power of the consumer combined with the rising middle income class means there are innumerable opportunities for Honeywell to tap into and increase its share of the market.

The company share price closed at N4.18 on July 31, on the floor of the Nigerian Stock Exchange, while market capitalisation was N32 billion.

BALA AUGIE