Flour Mills of Nigeria Plc is maintaining an upturn in earnings for the second year after lifting profit a clear 184 percent in the preceding financial year ended March 2020. The company’s first-quarter report as at the end of June 2020 shows a strong start with stable growth in revenue and profit.
The company is on the way to breaking the pattern of alternating rise and fall in profit that had marked its earnings records in recent years. In five years to 2020, the company has lost profit twice and raised it twice. It is seeing the first sustained improvement in profit this financial year, the strength to hold forth to a full year of which is a key development to watch.
The food and agro-allied company’s first-quarter report for the period ended June 2020 shows an after-tax profit of roughly N5 billion, a year-on-year increase of 17 percent. An improvement in sales revenue was the main factor in profit rebound in the prior financial year. Sales are again growing at an accelerated pace this year in defiance of the economic lockdown that ruled the operating period.
The company is maintaining the advantage of moderating input costs that contributed to the strong profit growth in the previous financial year. The proportion of sales revenue claimed by input cost declined from 88 percent in the same period last year to 83 percent at the end of the first quarter.
This is the lowest input cost margin the company has seen in six years and conversely the highest gross profit margin over the same period. Gross profit, therefore, grew at an outstanding mark of 55 percent to stand at N25.5 billion at the end of the first quarter.
The emergence of a net operating loss of N7.6 billion in the first quarter against a moderate gain in the same period last year stood in the way of the gains in gross profit getting down to the bottom line. It claimed much of the increase in gross profit and made the difference between the 55 percent leap in gross profit and an 11 percent improvement in operating profit at the end of the first quarter.
The company is maintaining strong growth in investment income as it recorded last financial year but a drop in finance expenses last year has shifted to an increase. Some progress made towards deleveraging the balance sheet last year is being reversed with a further build-up of balance sheet debts in the first quarter.
Growth in group sales revenue is happening across the three main revenue lines of food, agro-allied, and sugar. The growth rate has also stepped up across the segments.
Group sales revenue amounted to N154.58 billion for Flour Mills at the end of the first quarter ended June 2020, an improvement of 14.7 percent year-on-year. This is an accelerated growth from the 8.8 percent improvement in turnover the company recorded at the end of the last financial year. This sets the company on the strongest revenue growth path in four years.
Sales revenue may speed up further in the second half – which is the critical earning period for the company. Last year, the company’s half-year turnover figure of N134.7 billion multiplied to N573 billion at full year. The food products segment is the company’s main revenue line, accounting for 59 percent of sales revenue at the end of the first quarter.
To the strong growth in sales, management added a moderated cost of sales – both of which constitute the main operating strength of the company in the first quarter.
The cost saved from input expenses was largely consumed by a net operating loss N7.6 billion against a net operating gain of N126 million in the same period last financial year. Operating profit still improved by 11 percent to N11 billion at the end of June 2020.
Investment income more than doubled at 103 percent to N329 million but finance expenses grew by 7 percent to N4.9 billion over the review period. At about N135 billion at the end of the first quarter, the company’s borrowings stopped shrinking and grew by 23 percent over the closing figure at the end of March 2020.
Group after-tax profit amounted to slightly below N5 billion at the end of the first quarter, which is an increase of 17 percent year-on-year. This is further building on the exceptional profit growth in the preceding financial year.
Flour Mills closed the 2020 financial year with an after-tax profit of N11.4 billion. That marked a big turnaround from a drop of over 70 percent in profit in the 2019 financial year.
The company closed the first quarter operations with earnings per share of N1.07, improving from N1.03 in the same period in the preceding financial year. It closed the last financial year with earnings per share of N2.55 and is giving out N1.40 per share to shareholders in cash dividend.
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