Honeywell Flour Mills has found some strength in operations in the current financial year ending March 2016. It is ably defending market share and is succeeding so far in preventing sales revenue from declining for the second year. It has found even greater strength in controlling costs and has consequently improved profit capacity.
The company suffered a drop of 11% in sales revenue its 2014/15 financial year to a little above N49 billion and after tax profit fell by about 67% to N1.12 billion during the year. A big recovery in profit can be expected from the company at the end of the financial year with an accelerated growth seen in the third quarter.
Turnover went up by 5.7% year-on-year at the end of the third quarter in December 2015 to N39.77 billion, improving from a moderate decline in the second quarter. The full year outlook indicates a moderate improvement in sales revenue for the company in the 2015/16 financial year. That isn’t expected to be strong enough to reclaim the 11% drop in the preceding financial year. Inability to improve sales revenue is a sector-wide challenge for food/beverage companies in recent years.
The company closed third quarter trading with an after tax profit of N1.48 billion, an outstanding growth of 53.3% year-on-year. It is a big turnaround from a profit drop of 17.5% in the second quarter. Profit has therefore already exceeded the full year profit of N1.12 billion in the preceding financial year.
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A strong recovery in profit therefore looks very likely for Honeywell Flour Mills at the end of the current financial year. Full year outlook indicates an after tax profit in the region of N2 billion for the company based on the third quarter growth rate. That will be a recovery of 78.6% after the company lost 67% of profit in the preceding financial year. The company’s net profit had dropped from N3.35 billion in the prior year.
The ability to lift profit from a moderate increase in revenue in the third quarter came from significant cost savings. The biggest cost saving happened in respect of currency devaluation loss, which dropped by 51.5% year-on-year to N438 million at the end of the third quarter. Cost of sales also moderated relative to sales revenue, which improved gross profit margin from 18.5% to 20.4% over the review period. Revenue saved from the two cost areas permitted a leap of 59% in operating profit to N2.53 billion at the end of the third quarter.
There was a drop of 20.4% in finance expenses but a more rapid drop of 58.7% in finance income resulted in an increase of 65.4% in net finance expenses. At about N45 billion at the end of the third quarter, the company’s financial liabilities have not increased significantly from the closing figure in the preceding year.
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The company’s cash flow position is in good shape. Net cash generated from operating activities rose by more than 167% at the end of the third quarter to N8.43 billion. Net cash used for investing activities dropped by over 48% while net change in borrowings resulted in a net cash generation of N1.46 billion from financing activities. The company closed the third quarter operations with a net cash increase of N5.72 billion, rising from a net cash decrease of N5.36 billion in the same period in the prior year.
The company earned 18 kobo per share at the end of the third quarter against 12 kobo per share in the same period in the preceding year. It is expected to earn 25 kobo per share at full year against 14 kobo per share at the end of the preceding financial year.
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