Cost of input claimed about N1.06 trillion or 91 per cent of the group sales revenue of N1.16 trillion that Flour Mills of Nigeria generated in its 2022 financial year ended March.
The company’s revenue grew by N392 billion or almost 51 per cent in the year while input cost grew ahead of revenue by 59 per cent or N391 billion.
Consequently, the cost of input consumed almost the entire increase in sales in the year, which undermined the company’s ability to convert revenue into profit. Gross profit only inched up to N108 billion, showing a decrease in margin from about 14 per cent in 2021 to 9.3 per cent in 2022.
The cost increase is led by the cost of raw and packing materials, which rose by 64 per cent to N958 billion and other production expenses. The company stated in a statement that the rise in raw material costs largely impacted its sugar segment.
The Omoboyede Olusanya-led group management of the company is nevertheless quite impressed by the ability to push sales revenue that high in the year – the strongest top-line growth for the company in many years.
Revenue growth cuts across all business segments, offering a favourable mix of strong volume growth and a diversified earnings base. The company attributed the performance to its increased focus on local content and remarkable improvements in the agro-allied business segment. With an increase in local demand and export operations, the segment contributed N19 billion or 47 per cent of the group’s pre-tax profit, according to the company’s statement.
Impressed by the results, Omoboyede Olusanya, group chief executive officer of the company, expressed his commitment to implementing the company’s long-term plan involving further investments in local content. He said this would be done through product innovation across the company’s five major value chains.
Despite the adverse impact of input cost on margins, Flour Mills was able to push up group after-tax profit by 9 per cent to N28 billion in the year, a sharp slowdown however from the exceptional rise of 126 per cent in the preceding financial year.
Olusanya is betting to keep the flag of earnings performance flying going forward. “Our substantial underlying earnings demonstrate our commitment to achieving sustainability as we drive to achieve food security in the country, given the challenging operating environment over the years”.
He is confident that the differentiated product offers that the acquisition of Honeywell Flour Mills Plc is bringing into the marketplace would reinforce the products portfolio and position the group for opportunities arising from the African Continental Free Trade Area.
One big event on the side of cost provided the strength with which management was able to dilute the impact of the increased cost of sales and grow profit during the year. This is a deep plunge in net operating losses from N15.5 billion in 2021 to less than N136 million in 2022.
A major component of the losses in the prior fiscal year, which is foreign exchange loss, remained huge at over N10 billion in 2022 but it was mitigated by the government’s grant of N5.1 billion, a complete drop-in write off of equipment, a huge drop in sundry loss, a major shift from fair value loss to a gain and more than three times leap in fees earned.
The drop in net operating losses was complemented by a drop of 8 per cent in selling and distribution expenses to N11 billion in the year. The resulting cost savings changed the company’s reading from flat gross profit to a 25.5 per cent advance in operating profit, amounting to N65.5 billion for the year.
Yet management could not convert much of the increase in operating profit into net profit due to three developments of disappointing earnings and rising costs.
On the earnings side, investment income plunged by over 70 per cent to N1 billion in the year while on the side of cost, finance expenses grew by 36.6 per cent to N25.5 billion. Also, the minimum tax swelled from N91 million in the preceding year to N1.9 billion in 2022.
The company achieved capacity expansion in its food business with significant growth in business to business and business to customer volumes, which were driven by a focus on local content. There was also an expansion of redistribution capacity meant to enhance penetration into rural communities.
Export operations were also enhanced in the year, leading to 58 per cent revenue growth in the oil and fats business. The company also recorded significant progress in its backward integration project in sugar production. It introduced its locally grown brown sugar to the market to meet growing industrial demand in the north.
The company ended the year with earnings per share of N6.26 and has proposed a cash dividend of N2.15 per share to shareholders.