Flour Mills: Dropping sales hits profit

Flour Mills of Nigeria is losing sales revenue and that is hurting the ability to deliver profit. An impressive growth of 54% in after tax profit in the last financial year has shifted to a 46% drop in the bottom line at the end of its half year operations in September 2018. The disappointment draws from inability to push sales revenue as well as some cost increases.

The food and ago-allied company is however quite hopeful for the second half of the financial year running up to March 2019. Sales are expected to pick up in the coming quarters, as subsidiaries recharged for operations, turn in improved results. Profit performance is also expected to gain momentum as deleveraging of the balance sheet cut down finance expenses and initial losses of new subsidiaries give way for profitable operations.

The group posted sales revenue of N269.74 billion for the half year operations ended September 2018, a drop of close to 10% year-on-year. The drop in sales was encountered across the four value chains of the group – food, sugar, agro-allied and support services.

In the last financial year, the group’s sales revenue increased by 3.5% to N542.7 billion. Based on the expectations of accelerated growth in the second half of the financial year, another moderate growth in sales revenue is projected for Flour Mills at full year. The food products – flour, pasta, noodles, edible oil and refined sugar, accounting for over 64% of sales revenue, are expected to drive turnover through seasonal sales.

Cost of sales dropped at equal pace with sales revenue, which enabled the company to defend gross profit margin at 12%. The challenges came from a 49% growth in selling and distribution expenses to N4.12 billion and an 18% rise in administrative cost to N9.85 billion.

The effect of cost increases was extended by a fall of 78% in net operating gains to N1.1 billion. The effect was a drop of close to 35% in operating profit to N19.24 billion at the end of the period.

A major favourable development is a drop of 31% in finance expenses to N11.23 billion during the period. This reflects the company effort in cutting down borrowings from N153 billion at the end of the last financial year to N142 billion at the end of the second quarter. This is a continuing drop from N242 billion at the end of the previous financial year.

The strength to cut balance sheet debts has come from a new capital injection through rights issue concluded in the last financial year from which it raised over N39 billion. The new money has given the company increased operational and financial flexibility to take on new opportunities and grow the business, according to its chief financial officer, Mr. Jacques Vauthier.

Group after tax profit amounted to N5.07 billion for Flour Mills at the end of the second quarter in September, a year-on-year drop of 46%. Profit performance is expected to improve in the second half of the year though the full year picture isn’t foreseeable from the current position.

The company had raised after tax profit by 54% to N13 billion at the end of the 2017/18 financial year in March. Flour Mills has grown profit every year over the past five years except in 2016/17 financial year when profit dropped from the preceding year’s peak.

The company earned N1.25 per share at the end of the second quarter, down from N3.17 in the same period in the preceding financial year.