October 28, 2022/CSL Research

For Flourmills H1 2023 unaudited numbers, Revenue increased by 37.8% y/y to N720.58bn in H1 2023 from N522.82bn in H1 2022. Management noted that volumes in the food business softened while other business segments saw growth in volumes, hence the increase in Revenue was driven by a mix of volume and price increment. Q/q, Revenue topped 12.2% to N380.98bn in Q2 from N339.6bn in Q1. The Food business remains the major Revenue driver, contributing 61.8% (N445.67bn) to total Revenue. Revenue from the food business grew by 32.1% y/y and 9.1% q/q. The agro allied segment which contributed 21.4% (N153.90bn), grew by 52.3% y/y and 34% q/q while Revenue from sugar sales increased by 10.3% y/y but declined by -9.8% q/q. Revenue from support services contributed 2.3% (N16.34bn), grew by 10.3% y/y and 83% q/q. We expect further y/y growth in Revenue in Q3 particularly on the strength of recent price increases, yuletide season demand and anticipated consolidation of the recently acquired Honeywell Flourmill (N76.50bn as at H1 2022).

The Cost of Sales (adjusted for depreciation), driven by the prevailing global price hike and local FX pressures, continued to grow faster than Revenue, up 39.3% y/y to N638.31bn in H1 2023 from N458.07bn in H1 2022. Specifically, raw material costs grew in tandem with Revenue, up 38% y/y to N583.34bn while production energy cost rose by 120.75% y/y to N25.33bn. Consequently, Gross Margin shrank to 11.4% in H1 2023 from 12.4% in H1 2022. However, Gross Profit was up 27.3% y/y to N82.27bn in H1 2023 from N30.71bn in H1 2022.

Operating Expenses (adjusted for depreciation) appeared under control as Administrative Expenses (adjusted for depreciation) increased by 16% to N16.07bn in H1 2023 from N13.85bn in H1 2022. This was despite the 120.37% spike in administrative energy cost to N294m in H1 2023 from N145m in H1 2022. Selling & Distribution Expenses increased by 7.6% to N7.94bn in H1 2023 from N7.38bn in H1 2022. Notably, advertisement spend moderated, down 10.23% to N2.68bn in H1 2023 from N1.87 in H1 2022. Consequently, EBITDA increased by 27.3% y/y to N45.83bn in H1 2023 from N36.00bn in H1 2022. However, EBITDA Margin shrank, down -0.5ppts to 6.4% in H1 2023 from 6.9% in H1 2022.

Depreciation & Amortisation increased by 29.8% y/y to N15.51bn in H1 2023 from N11.95bn in H1 2022, hence Earnings Before Interest and Tax (EBIT) grew by 26.1% y/y to N30.33bn in H1 2023 from N24.06bn in H1 2022.

The company’s Finance Income dropped by 49.9% to N378m in H1 2023 from N755m in H1 2022 despite the 89.58% increase in Bank Balance and Fixed Deposits to N57.87bn in H1 2023 from N30.52bn as of December 2022. On the flip side, Finance Cost jumped by 139.3% to N22.32bn in H1 2023 from N4.95bn in H1 2022 as Loans & Borrowings doubled, up 112% to N316.39bn in H1 2023 from N148.83bn as of December 2022. We also note that the company recorded 108% increase in FX losses to N19.74bn in H1 2023 from N9.49bn in H1 2022. Consequently, Net Finance Loss increased by 156% to N21.94bn in H1 2023 from N8.57bn in H1 2022.

Overall, Net Profit from continuing operations declined by 45.9% y/y to N5.7bn in H1 2023 from N10.53bn in H1 2022.

We have a HOLD recommendation on Flourmills with a target price of N32.04/s.  Current price; N30.30/s

Flour Mills Nigeria, H1 2023 (N’m)

Source: Company, CSL Research