Flour Mills: Another year of high rise in profit

Flour Mills of Nigeria Plc is headed for even faster profit advance for the 2021 financial year than the 184 percent upsurge it registered in its 2020 financial year ended March.

The food and ago-allied company made a strong start in the first quarter and has accelerated on the earnings track in the 2021 financial year ending March.

Sales revenue and profit accelerated in the second quarter ended September 2020 and another year of high rise in profit is in the making for Flour Mills. Growth in turnover tripled from less than 15 percent in the first quarter to over 47 percent quarter-on-quarter in the second, hitting over N200 billion for the quarter.

After tax profit multiplied three times to almost N5 billion over the same period. The year-on-year position shows that sales revenue accelerated to 31 percent at the end of the second quarter and profit jumped from 17 percent growth in the first quarter to 68 percent at the end of the second.

There is a change of trend from alternating rise and fall in profit that had marked the company’s earnings records in recent years. Profit improvement is being sustained for the first time in several years and it is promising to be another big leap for the company. The strength to drive through another high earnings growth record to full year is a key development to watch on Flour Mills in 2021.

The company closed the second quarter operations in September 2020 with an after tax profit of N9.9 billion, rising from N5 billion at the end of the first quarter. The strong growth in sales revenue is providing the driving force in the outstanding profit growth for the second financial year.

A strong growth in group sales across the three main revenue lines of food, agro-allied and sugar in the first quarter was maintained in the second. The growth rate even increased across the segments. Food products segment is the company’s main revenue line, accounting for roughly 61 percent of sales revenue at the end of the second quarter.

Flour Mills is on the strongest revenue growth path in many years this financial year. Group sales revenue stood at over N355 billion for the company at the end of the second quarter in September 2020, which is an improvement of 31 percent year-on-year. This is a sustaining improvement in revenue growth from less than 9 percent at the end of the last financial year to 17 percent in the first quarter and further to 31 percent at half year.

The company’s top record growth in revenue and profit may yet accelerate in its second half — which is its critical earning period. In the preceding financial year, the company’s half year turnover figure of N135 billion multiplied to N573 billion at full year.

Alongside the strong growth in sales is moderated input cost. The favourable combination constitutes the main operating strength for the company so far in the year.  Cost of sales isn’t growing as rapidly as sales revenue at 27 percent compared to 31 percent. This has reduced the proportion of sales revenue claimed by input cost from over 88 percent at the same period in the preceding financial year to 86 percent at the end of the second quarter.

This represents the lowest input cost margin the company has recorded in six years and conversely the highest gross profit margin over the same period. This provided the strength for accelerated growth in gross profit from 55 percent in the first quarter to 58 percent at the end of the second quarter to stand at more than N50 billion.

Selling and distribution cost provided another major cost saving area for the company. It ended flat at N4.4 billion over the review period against the outstanding growth in sales.

Net operating loss of about N9 billion claimed a good part of the cost savings but operating profit still accelerated from 11 percent increase in the first quarter to 41 percent to close at N24 billion at the end of the second quarter.

At about N10 billion, finance expenses are on the upward direction this financial year after a decline in the preceding year. This reflects increased balance sheet borrowings from N104 billion at the end of the last financial year to N129 billion at the end of the second quarter. It is however a reduction from N135 billion at the end of the first quarter.

Flour Mills closed its second quarter operations in September 2020 with group after tax profit of N9.9 billion. This is an increase of 68 percent year-on-year. The figure is already quite close to the full year profit of N11.4 billion the company posted at the end of the 2020 financial year in March.

The company earned N2.33 per share at the end of the second quarter operations, compared to N1.53 per share in the same period in the preceding financial year. It closed the 2020 financial year with earnings per share of N2.55 and gave shareholders a cash dividend of N1.40 per share.