The tough operating environment for consumer companies operating in Africa’s largest economy has squeezed the revenue of Honeywell Flour Mills plc, analysis of the financial statement shows.
For the nine months through September 2014, the company’s revenue fell by 3.51 percent to N26.87 billion from N27.85 billion the same period of the corresponding year (Q3) 2013, while profit after tax (PAT) increased by N8.95 billion.
Analysts attribute the slow growth at the top-line level to the high rate of unemployment and inflation rate that have been squeezing consumers wallets.
The insecurity challenges in the North part of the country also contributed to the downward sales, thus crimping the market share of the company.
It should be noted that Nigeria millers are also confronted with the challenges of exchange rate volatility that affects the price of wheat, a raw material imported from overseas.
Honeywell, as a result of the aforementioned tough operating environment, had high cost margin of 82.80 percent as operating margin was down to 5.88 percent from 7.14 percent the preceding year.
While there was a reduction in cost of sales by 3.51 percent to N22.25 billion, the company could not manage direct cost attributed to projects as gross profit fell by 3.75 percent to 4.61 percent from N4.79 billion the preceding year.
Net margin, a measure of profitability and efficiency, however, increased to 4.07 percent in the review period from 3.60 percent last year.
Total assets remained flattish at N63 billion, while current ratio, a measure of liquidity was 0.91x, which is below the industry average of 2.1x. Additionally, sales turnover was 0.42x in the review period compared with 0.43x last year.
Fast moving consumable goods companies may face further challenges as analysts say the recent devaluation of the naira may affect the price of imported raw materials.
The Central Bank of Nigeria (CBN) has hiked the price of the country’s currency in relation to the US dollar to N168 from N155; a policy it says is expedient in order to protect the foreign reserves, which has been pressured by slide in the price of oil at the international market.
Despite the unpredictable Nigerian operating environment, Honeywell still remains unrelenting in its expansion drive to increase its share of the market as it completed its 1000mt/day increase in milling capacity in March last year.
This brings the total milling capacity of the company to 2610mt/day, as the company says the full impact of the increased capacity will be felt on its Semolina, Wheat Meal and Flour sales volumes in the financial year March 2014.
Return on average equity ROAE was 4.60 percent in the review period, while return on average assets ROAE stood at 6.88 percent.
Honeywell’s share price closed at N3.44 on the floor of the NSE, while market capitalisation was N27.28 billion.
BALA AUGIE
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