February 2, 2023/CSL Research

Flour Mills’ 9M 2023 unaudited numbers showed a 35% y/y increase in Revenue to N1.11trn in 9M 2023 from N824.98bn in 9M 2022.  Q/q, Revenue increased marginally by 3.3% to N393.39bn in Q3 from N380.98bn in Q2. The Food business remained the major Revenue driver, contributing 65.0% (N724.22bn) to total Revenue.

Revenue from the food business grew by 35.5% y/y and 19.8% q/q. Management noted that the 35.5% y/y growth in the Food business was largely due to continued focus on retail expansion and proactive pricing to cushion steep input costs.

The agro allied segment which contributed 19.6% (N218.24bn), grew by 38.9% y/y but declined by 27.1% q/q while Revenue from sugar sales increased 34.2% y/y but declined 19.0% q/q. Revenue from support services contributed 2.4% (N26.65bn), grew by 5.0% y/y but was down 2.5% q/q.

The commissioning of a new fertilizer blending plant in May 2022 has continued to support growth in the agro sector. While we expect the anticipated consolidation of the recently acquired Honeywell Flourmills (with Revenue of N113.43bn as at 9M 2023) to boost revenue, we note the potential negative impact of Honeywell’s N10.3bn operating loss as at 9M 2023.

Against the backdrop of higher commodity prices in the global market, albeit, moderate in H2 2022, and local FX pressure, Cost of Sales (adjusted for depreciation), grew slightly faster than Revenue, up 35.8% y/y to N989.98bn in 9M 2023 from N729.15bn in 9M 2022.

Specifically, raw material costs grew 34.82% y/y to N907.69bn while production energy cost rose by 96.09% y/y to N33.57bn. Consequently, Gross Margin shrank to 11.1% in 9M 2023 from 11.6% in 9M 2022. However, Gross Profit was up 29.4% y/y to N123.99bn in 9M 2023 from N95.83bn in 9M 2022.

Operating Expenses (adjusted for depreciation) grew significantly as Administrative Expenses (adjusted for depreciation) increased by 45.8% to N27.73bn in 9M 2023 from N19.01bn in 9M 2022. This was partly driven by a 96.8% spike in administrative energy cost to N435m in 9M 2023 from N221m in 9M 2022.

Selling & Distribution Expenses also rose faster than Revenue, up, 38.3% to N13.33bn in 9M 2023 from N9.64bn in 9M 2022. Notably, advertisement spend rose by 57.84% to N2.63bn in 9M 2023 from N1.67 in 9M 2022. Consequently, EBITDA increased by 29.6% y/y to N75.88bn in 9M 2023 from N58.57bn in 9M 2022. However, EBITDA margin shrank, down 0.3ppts to 6.8% in 9M 2023 from 7.1% in 9M 2022.

Depreciation & Amortisation increased by 32.3% y/y to N23.97bn in 9M 2023 from N18.12bn in 9M 2022, hence Earnings Before Interest and Tax (EBIT) grew by 28.4% y/y to N51.92bn in 9M 2023 from N40.44bn in 9M 2022.  

The company’s Finance Income dropped by 41.8% to N544m in 9M 2023 from N935m in 9M 2022 despite the 134.0% increase in Bank Balance and Fixed Deposits to N74.0bn in 9M 2023 from N31.62bn as of year-end 2022. On the flip side, Finance Cost jumped by 132.6% to N37.5bn in 9M 2023 from N16.12bn in 9M 2022 as Loans & Borrowings doubled, up 104% to N303.72bn in 9M 2023 from N148.83bn as of year-end 2022. We also note that the company recorded 155.6% increase in FX losses to N29.73bn in 9M 2023 from N11.63bn in 9M 2022. Consequently, Net Finance Loss increased by 143% to N36.96bn in 9M 2023 from N15.19bn in 9M 2022. 

Overall, Net Profit from continuing operations declined by 41.2% y/y to N10.01bn in 9M 2023 from N17.03bn in 9M 2022.  

Our estimates are under review. Current Price: N29.55

Flour Mills Nigeria, 9M 2023 (Nm)

Source: Company, CSL Research