It’s feasible to the deaf and audible to the blind that fast moving consumer goods firms are operating in a scotching operating environment, which is why companies that want to thrive amid the headwinds must embrace an aggressive business restructuring.
Of course, dwindling purchasing power among consumers, insecurity in the northern part of the country, decrepit infrastructure, high incidence of smuggling, counterfeiting locally manufactured products, and the menacing grid lock at the Apapa Ports makes it practically difficult for companies to break even or magnify profit margins.
Perhaps more worrisome is that Nigerians are getting poorer with no money in their pocket to buy goods while a high inflationary environment has damped the marginal propensity to consume.
Flour Mills of Nigeria Plc (also referred to as FMN, or the FMN Group), the largest miller by market value, is poise to surmount these myriad of challenges as it plans to undertake a strategic restructuring process which will group its operations along its core business functions and value chains.
Accordingly, FMN will now function from four major operational pillars namely, Foods, Agro-allied, Sugar and Support Services, which by the way includes its transport and Logistics arm, Golden Transport company, Apapa Bulk Terminal and the popular bags and packaging brand Bagco.
Going by the details contained in the Scheme of External Restructuring document made available to shareholders, it is expected that all agro-allied and related businesses will now be grouped under Golden Fertilizer Company Limited, a wholly owned subsidiary of Flour Mills of Nigeria Plc. This inherently implies that all assets and liabilities of Golden Fertilizer division which was until recently a part of FMN will now be transferred to Golden Fertilizer Company Ltd.
Other than the inherent benefits of improving synergies within the business functions and operational lines, the management of FMN believes that the restructuring will allow the various businesses groups to focus and grow its market share and attract new capital and investors.
The world over, mergers and restructuring of this nature has been identified as a potent tool for repositioning companies to achieve economies of scale.
Experts are of the view that the restructuring will result in value in maximization for shareholders through a more effective and efficient utilization of resources.
Of course merger of this sort along business operations underpins profit margin in the long run because the bigger unit will have the capacity to produce more while cost of production will drastically reduce.
Flour Mills do not see the restructuring employees of the Group but it expects that there will be more opportunities for employment, as different roles will be created by virtue of an incorporated entity carrying on the fertilizer business of Flour Mills.
“We expect Golden Fertilizer to incorporate its governance structure, its board of directors etc, and recruit resources accordingly. The benefits and interests of the employ,” said the company.
The new scheme will not have any financial effects on the balance sheet of Four Mills as shareholders’ fund will remain at N153.27 billion albeit a total of N1.66 billion was transferred to Golden Fertilizer.
“For a company that has been in operation in Nigeria since 1960, the potentials for further expansion and growth is not in doubt. The group constantly aims to expand its current operations both organically and through targeted acquisitions and/or joint ventures in line with its strategic objectives,” said Flour Mills.
Volume Surges as leverage ratio improves
Flour Mills just released its nine month ended December 2018 financial statement that showed the consumer goods giant recorded volume growth amid a tough and unpredictable macroeconomic environment.
The company said that continued strong sales and brand building focus has ensured a further growth in market share and strengthened the Group’s market leader position within the flour market.
Flour Mills has reduced the amount of debt in its capital structure as finance cost reduced by 34 percent to N16.12 billion in the third quarter to December (Q3) 2018 from N25.13 billion the previous year; the reduction in debt was largely driven by settlement of overdraft facilities and replacement of high yielding low with more favorable loans.
Also, total debt- long and short term- stood at N127.41 billion in the period under review, representing a 39.58 percent reduction from N132.92 billion recorded the previous year.
Debt to equity ratio, which means the level of debt in the capital structure, fell to 83.55 percent in Q3 (Dec) 2018 from 88.13 percent the previous year.
The consumer goods firm has a coverage ratio of 1.64 times operating profit- though lower than the 1.76 times recorded in 2017-, which mean the company’s earnings can cover its interest expenses.
The lower a company’s interest coverage ratio is, the more its debt expenses burden the company. When a company’s interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. 1.5 is generally considered to be a bare minimum acceptable ratio for a company and the tipping point below which lenders will likely refuse to lend the company more money, as the company’s risk for default may be perceived as too high.
The results are largely a reflection of our focus on driving volume while improving on operational efficiency and ramping up strategic marketing and promotional activities to win over market segment in our food business,” according to Paul Gbededo, Group managing director of Four Mills.
“Despite devastating effect of traffic congestion in Apapa on our operation, we are positive that we will see improvements across our major business segments before the close of the financial year, as we continue to focus on delivering on our promise of quality to our customers,” said Gbededo.
Amid a myriad of challenges beleaguering consumer goods firms in Africa’s largest economy, Four Mills recorded a profit after tax of N7.89 billion while it posted revenue of N401.12 billion.
Historical Background and Strategic Plans
Flour Mills of Nigeria Plc was incorporated on 29 September 1960 as a private limited liability company and commenced operations in 1962 with an installed flour milling capacity of 500 metric tonnes per day. In 1978, Flour Mills was converted to a public limited liability company and its shares were subsequently listed on The Nigerian Stock Exchange. Today, Flour Mills is the largest flour milling company in Nigeria with an installed flour milling capacity of approximately 2.9 million metric tonnes per annum. Flour Mills continues to evolve from a food focused business to a food and agro-allied company.
In 2012, Flour Mills commenced implementing its backward integration programs through its agro-allied business initiatives, primarily to support its core food business. The Company has continued to pursue strategic business opportunities, such as capacity expansion and realignment of its core food business whilst backwardly integrating in order to further mitigate reliance on imports and exposure to external volatility in the food business by increasing local content in a substantive and sustainable way.
BALA AUGIE
