First Take: Flourmills Q1 2020 Earnings – Debt Restructuring Prompts Earnings Growth

Home NewsFirst Take: Flourmills Q1 2020 Earnings – Debt Restructuring Prompts Earnings Growth

First Take: Flourmills Q1 2020 Earnings – Debt Restructuring Prompts Earnings Growth

No Comments

From its four business segments, Flourmills of Nigeria Plc generated revenue of N134.7 billion, a paltry growth of 1.3% over the previous year comparable period. Breaking down the individual performance of each business, the Agro-Allied business grew by 3.8% fueled by growing demand for Premier Feeds, while the 20% strong growth in the sugar business was owed to increase in global sugar prices. Sales from its food business, its largest business declined 2.6%, a reflection of the unabating pressure on the consumer’s purse. Within the segment, flour volumes grew, albeit in the lower-priced products as consumers adjusted preference in line with economic reality, while pasta sale experienced strong growth, attributable to new products introduced in the Northern market. Ball foods were relatively flat in the quarter.

Accordingly, in line with revenue growth, production costs increased, but at a faster pace, on the back of higher commodity price in sugar and wheat, out-turn of which gross profit reduced to N16.5 billion, a -4.6% decrease over last year. Thankfully, management achieved constrained operational expenses in the period, keeping administrative and selling costs flat, resulting in the reported 11.7% drop in operating income to N9.89 billion.  

In a different turn of events, the company profit before tax rose 5.5% to 5.5 billion, salvaged by the 26.6% drop in finance cost – a knock-on-effect of previous year debt restructuring. In total, profit earned in the period grew 16.5% to 4.2 billion naira.

Though consumer goods businesses remain smothered by a litany of woes, in our view, increased consumer demand from the holiday festivities, and sustained growth in pasta sales would support higher food segment revenue next quarter, while expansion in the agro-allied segment is poised to persist. On the cost side, Flourmills stands to benefit from lower input cost, should our lower wheat price forecasts materialize. Improving logistic dynamics in the Apapa Ports also plays well for the company.

The stock price gained 6.7% upon receiving the result and now trades at N14.90 at the time of report writing.