FSDH Initial Reaction: Flour Mills 3QFY22 results
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February 2, 2022/FSDH Research
Key Performance Highlights:
- Flour Mills recorded an impressive 50.9% YoY increase in revenue to N302.2 billion in 3Q22, driven by robust growth across the majority of the segments via continuous product innovation and improved capacity utilization. All the reporting segments barring Support Services delivered double-digit YoY revenue growth. The highest YoY revenue growth of 67.2% came from Agro Allied (19% of 3Q22 revenue), driven by increased local demand and improved export orientation. This was followed by Food (65% of 3Q22 revenue) and Sugar Value Chain (13% of 3Q22 revenue) at 53.9% and 20.1%, respectively, while Support Services registered a 13.6% fall in revenue. The company reported revenue growth of 4.5% on a sequential basis, while the net profit rose 28.2% QoQ to N6.5 billion in 3Q22.
- As the cost of sales grew more than proportionately at 55.2% YoY, it led to the shrinking of gross margin by 253 bps YoY to 8.5% in 3Q22. The material costs that form 90% of the cost of sales spiralled upward by 57.0% to N250.5 billion in 3Q22, thereby significantly impacting the gross margin. Flour Mills’ expenses soared as its administrative expenses rose by a 13.0% YoY to N6.1 billion in 3Q22, partially offset by a 4.0% fall in selling & distribution expenses to N2.3 billion. The company’s net operating losses significantly reduced (98.8%) to N43.0 million from N3.7 billion in 3Q21. In turn, this increased the company’s operating profit by 42.8% YoY as a sharp decrease in operating expenditure supported the robust revenue growth. Looking at segmental profitability, persistent good operating performance in the Food segment; continuous improvement in the Agro-Allied and Support segments alongside strong volume growth resulted in an impressive Profit Before Tax of N25 billion in 9 months and N9.8 billion in 3Q – up 7% and 8% respectively.
- The decline in finance income (-92.8% YoY) and increase in finance costs by 36.6% YoY resulted in a substantial increase in net finance costs by 167.2% to N6.6 billion. The company recorded a net profit of N6.5 billion in 3Q22 versus N5.6 billion a year back, resulting in a 15.4% YoY growth. The growth in profit after tax can be attributed to continued bottom-line expansion in the Food, Agro-allied, and significant growth in the Support Service segment that reported profit before tax of N3.4 billion, N3.2 billion, and N2.6 billion, respectively. Net margin declined by 66 bps YoY in 3Q22 to 2.2%. The company reported earnings per share of N1.57/share versus N1.53/share in 3QFY21.
- Flour Mills recorded a 4.5% QoQ growth in revenues in 3Q22 to N302.2 billion. The Cost of Sales outpaced revenue growth to grow at 6.1% QoQ, partially offsetting the revenue growth, the Gross Profit declined by 10.1% QoQ. The company’s gross margin declined 104 bps YoY to 8.5% in 3Q22. The company successfully kept the operating costs in check, which resulted in Profit after Tax rising by 28.2% QoQ to N6.5 billion compared to N5.1 billion in 2Q22. The Agro Allied segment operating profit fell 40.2% QoQ to N3.2 billion in 3Q22, while support services reported a profit of N2.6 billion in 3Q22 vs N1.9 billion in 2Q22.
- On November 22, 2021, Flour Mills of Nigeria announced the acquisition of a 76.75% stake in Honeywell Flour Mills.
Market Reaction: The investor reaction to the solid 3Q22 performance was subdued as the stock remained unchanged at N28.55 versus a 0.91% gain for the All-Share Index on Monday (31/1).
Flour Mills Earnings Highlight 3Q22
Source: Company Financials, FSDH