FSDH Initial Reaction: Flour Mills 3Q23 results
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February 1, 2023/FSDH Research

Key Performance Highlights:

• In 3Q23, Flour Mills continued its robust top-line performance as the company recorded a stellar 30.2% YoY increase in revenue to N393.4 billion, driven by robust growth across the segments via continuous product innovation and improved capacity utilization. The highest YoY revenue growth of 41.4% came from Food (71% of 3Q23 revenue), followed by Agro-Allied (16% of 3Q23 revenue), rising 14.7% YoY, and Sugar Value Chain (10% of 3Q23 revenue) growing 4.5% YoY. However, the Support Services (3% of 3Q23 revenue) registered a marginal 2.5% YoY decline in revenue. The company reported revenue growth of 3.3% on a sequential basis, while the net profit vaulted 21x QoQ to N4.3 billion in 3Q23.
   
• The gross margin improved by a mere 22 bps YoY to 8.8% in 3Q23 as the cost of sales also grew in line at 29.9% YoY. The material costs that form 90.4% of the cost of sales grew by 29.5% YoY to N324.4 billion in 3Q23. Moreover, the power cost jumped 47.7% YoY to N8.5 billion in 3Q23 also contributed to the rise in the Cost of Sales. Although the company’s administrative expenses surged 112.0% YoY to N12.9 billion in 3Q23, coupled with a 138.7% YoY rise in selling & distribution expenses to N5.4 billion, Flour Mills reported an operating profit of N21.6 billion, a 31.7% YoY jump, from N16.7 billion in 3Q22. The massive increase in operating costs was offset by an impairment write-back of N1.1 billion in 3Q23 vs. an impairment loss of N1.0 billion in 3Q22 and a 61.0x YoY spurt in fees earned to N14.3 billion in 3Q23. Furthermore, the company’s FX loss soared 4.7x to N10.0 billion in 3Q23. Consequently, the company’s operating margin expanded by just 6 bps YoY as the robust revenue growth was offset by a significant jump in costs.
   
• The decline in finance income (-8.1% YoY) and increase in finance costs by 123.4% YoY resulted in a substantial increase in net finance costs by 127.0% YoY to N15.0 billion in 3Q23. Resultantly, the company’s profit before tax came in at N6.6 billion versus N9.8 billion in 3Q22. The Support Services reported a profit before tax of N3.5 billion, the Food segment recorded a profit before tax of N2.1 billion, and the Agro Allied segment recorded a profit before tax of N1.9 billion in 3Q23. In contrast, the Sugar Value Chain segment reported a loss before tax of N0.9 billion in 3Q23 versus a profit before tax of N0.6 billion in 3Q22. The company recorded a net profit of N4.3 billion in 3Q23 versus N6.5 billion a year back, as the net margin declined 106 bps YoY in 3Q23 to 1.1%. The company reported earnings per share of N0.90/share versus N1.57/share in 3Q22.
   
• Flour Mills recorded a marginal 3.3% QoQ revenue growth in 3Q23 to N393.4 billion. The cost of sales rose 3.9% QoQ, resulting in a gross margin contraction of 57 bps QoQ. In 3Q23, operating profit increased 43.5% QoQ, as the company reported N4.3 billion in net operating gains against N9.4 billion in net operating losses in 3Q22, partially offset by a higher administrative expense (+60.3% QoQ) and selling & distribution expenses (+62.1% QoQ). The finance cost rose 7.1% QoQ, and the company’s net profit vaulted 21x QoQ to N4.3 billion in 3Q23.

Market Reaction: The investor reaction to 3Q23 performance was subdued as the stock declined 2.91% to N30.00 versus a 0.15% gain for the All-Share Index (31/1).

Flour Mills Earnings Highlight 3Q23

Source: Company Financials, FSDH