May 31, 2022/CSL Research

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Key Performance Highlights:

• Flour Mills recorded an impressive 50.8% YoY increase in revenue to N1163.8 billion in FY22, driven by robust growth across the majority of the segments via continuous product innovation and improved capacity utilization. All the reporting segments delivered double-digit YoY revenue growth. The highest YoY revenue growth of 56.5% came from the Food segment (64% of FY22 revenue), driven by increased volumes, followed by Support Services (4% of FY22 revenue), Agro-allied (18% of FY22 revenue), and Sugar Value Chain (13% of FY22 revenue) at 56.3%, 53.0%, and 25.2%, respectively.
   
• As the cost of sales grew more than proportionately at 58.8% YoY, it led to the shrinking of gross margin by 455 bps YoY to 9.3% in FY22. The raw and packing material costs that form 90.7% of the cost of sales spiralled upward by 64.1% to N958.0 billion in FY22, thereby significantly impacting the gross margin. Flour Mills’ expenses rose as its administrative expenses increased by 9.4% YoY to N31.8 billion in FY22, partially offset by an 8.3% fall in selling & distribution expenses to N11.1 billion. The company’s net operating losses fell by 99.1% YoY to N136.0 million from N15.5 billion in FY22, driven by higher fees earned. Consequently, the company’s operating profit soared 25.5% YoY. Looking at segmental profitability, operating profit in the Food segment edged 4.9% lower to N21.7 billion, supported by a 240.4% YoY drop in Sugar Value Chain segment profits resulting in a loss of N4.7 billion in FY22; while the Support segment profits spurted 450.8% YoY, supported by an 81.3% YoY rise in the Agro-Allied segment profits. Consequently, the Profit Before Tax stood at N39.2 billion in FY22, an 5.2% YoY rise.
   
• The decline in finance income (-70.3% YoY) coupled with a 36.6% YoY increase in finance costs resulted in a substantial increase in net finance costs by 62.6% to N24.4 billion. The increase in finance costs was driven by an 81.7% YoY rise in interest paid on bank loans and overdrafts to N17.96 billion in FY22. The company recorded a net profit of N28.0 billion in FY22 versus N25.7 billion a year back, an 8.9% YoY jump. The growth in profit after tax can be attributed to continued bottom-line expansion in the Agro-allied, and Support Service segments that reported profit before tax of N18.0 billion, and N6.1 billion, respectively, coupled with a decrease in the effective tax rate to 28.6% in FY22, compared to 31.0% in FY21. Net margin declined by 93 bps YoY in FY22 to 2.4%. The company reported earnings per share of N6.26/share versus N6.38/share in FY21.
   
• Flour Mills recorded a 56.7% YoY revenue growth in 4Q22 to N338.8 billion. However, the cost of Sales outpaced revenue growth to grow at 70.9% YoY, offsetting the revenue growth; the Gross Profit declined by 18.8% YoY to N27.9 billion in 4Q22. The company’s gross margin declined 764 bps YoY to 8.2% in 4Q22. Nonetheless, the company managed to control the operating expenses as administrative expenses and Selling and Distribution Expenses dropped by 4.2% and 72.9%, respectively. The company also recorded a net operating gain of N7.8 billion in 4Q22 compared to a loss of N2.9 billion in 4Q21, which resulted in operating profit rising by 47.6% YoY to N25.0 billion in 4Q22. However, the solid operating performance was offset by the increased finance costs (up 151.0% YoY), primarily due to increased interest expense on bank loans and overdrafts. Consequently, the profit before tax grew merely 16.8% YoY to N15.9 billion in 4Q22. The company reported a drop in effective tax rate to 21.4% in 4Q22 compared to 25.9% in 4Q21, leading to an 8.2% YoY jump in net profit to N11.0 billion in 4Q22. However, as the net profit attributable to minority shareholders was N1.7 billion in 4Q22 versus a loss of N212 million in 4Q21, the net profit attributable to the company’s shareholders dropped 10.5% YoY to N9.3 billion in 4Q22. The company reported earnings per share of N2.26 per share in 4Q22, down 10.5% YoY. The board recommended a final dividend of N2.15 per ordinary share (2021: N1.65 per ordinary share).
   
• On April 8, in a bid to strengthen its drive for local content and reaffirm its commitment to the backward integration strategy of the Nigerian Sugar Master Plan, Flour Mills of Nigeria Plc announced the launch of Sunti Brown Sugar, a wholly Made-in-Nigeria Brown Sugar.                                                                                                   
• On April 29, Flour Mills of Nigeria Plc. announced that it obtained all required regulatory approvals to acquire a 71.69% stake in Honeywell Flour Mills Plc., formerly a portfolio company of Honeywell Group, and a 5.06% stake in Honeywell Flour Mills held by First Bank of Nigeria Limited and has confirmed that the parties have now consummated the transaction. This acquisition enables Flour Mills of Nigeria to extend its reach across Nigeria, provide enhanced manufacturing capacity and create synergies to deliver improved products to consumers.
   
• The Management of Flour Mills of Nigeria Plc announced Ms. Yewande Sadiku’s appointment to the Company’s Board of Directors, effective February 16, 2022, and Mr. Bola Adeeko as the Director for Special Projects, effective March 1, 2022.

Market Reaction: The investor reaction to the tepid FY22 performance was muted as the stock fell 0.98% to close at N 35.35 versus a 0.25% drop for the All-Share Index on Tuesday (31/5).

Flour Mills Earnings Highlight FY22

Source: Company Financials, FSDH