• Flour Mills reported FY23 and 1Q24 results on August 29. In 1Q24, Flour Mills continued its robust top-line performance as the company recorded an impressive 34.4% YoY increase in revenue to N456.4 billion, driven by robust growth across the segments via continuous product innovation and improved capacity utilization. The highest YoY revenue growth of 42.4% came from Food (67% of 1Q24 revenue), followed by Agro-Allied (17% of 1Q24 revenue), rising 21.6% YoY, and Sugar Value Chain (15% of 1Q24 revenue) growing 20.8% YoY and Support Services (1% of 1Q24 revenue) registered a 10.5% YoY increase in revenue. The company reported revenue growth of 7.2% on a sequential basis, while the operating profit fell 84.5% QoQ to N7.1 billion in 1Q24.
   
• The gross margin improved by 123 bps YoY to 11.0% in 1Q24 as the cost of sales grew slightly lower at 32.6% YoY. Among the components of COGS, the highest rise was seen in rent costs, increasing 39.6% YoY to N98.8 million. The material costs that form 91.5% of the cost of sales grew by 34.3% YoY to N371.7 billion in 1Q24. Moreover, the power costs increased marginally by 1.5% YoY to N9.6 billion in 1Q24. The company’s administrative expenses increased 12.3% YoY to N11.3 billion in 1Q24, while selling & distribution expenses rose 29.5% to N5.9 billion. Also, net operating losses increased 8.8x YoY to N25.7 billion as foreign exchange losses soared 3.4x to N22.5 billion in 1Q24. Consequently, Flour Mills reported an operating profit of N7.1 billion, a 53.4% YoY decline from N15.2 billion in 1Q23. As a result, the company’s operating margin shrunk by 294 bps YoY as the robust revenue growth was offset by a significant jump in costs.
   
• The decline in finance income (-12.9% YoY) and increase in finance costs by 104.0% YoY resulted in a substantial increase in net finance costs by 106.8% YoY to N16.4 billion in 1Q24. The company’s loss before tax came in at N9.3 billion versus a profit of N7.3 billion in 1Q23. The Agro Allied segment reported a profit before tax of N4.6 billion. In contrast, the Food segment reported a loss before tax of N11.5 billion in 1Q24 versus a profit before tax of N4.6 billion in 1Q23, while the Sugar Value Chain segment reported a loss before tax of N0.3 billion in 1Q24 versus a profit before tax of N1.6 billion in 1Q23 and the Support Services segment reported a loss before tax of N2.2 billion in 1Q24. The company recorded a net loss of N9.3 billion in 1Q24 versus a net profit of N5.4 billion a year back, as the net margin declined 366 bps YoY in 1Q24 to -2.0%. The company reported a loss per share of N2.49 versus earnings per share of N1.37/share in 1Q23.
   
• Along with the 1Q24 results, the company also reported FY23 results on August 29. Flour Mills recorded 32.3% YoY revenue growth in FY23 to N1,539.6 billion. The cost of sales rose 29.1% YoY, resulting in a gross margin expansion of 222 bps YoY. In FY23, operating profit increased 49.2% YoY to N97.8 billion from N65.5 billion in FY22, offset by higher foreign exchange losses (a component of net operating losses) of N31.5 billion in FY23 compared to N10.2 billion in FY22. The finance cost rose 118.7% YoY as interest paid on bank loans and overdrafts increased to N48.6 billion from 17.9 billion in FY22. The company’s net profit increased 5.3% YoY to N29.5 billion in FY23, but the net margin declined by 49 bps YoY to 1.9%. The company reported earnings per share of N7.25/share in FY23 versus N6.26/share in FY22. Moreover, the Board of Directors have proposed a dividend of N2.25 (FY22: N2.15) per ordinary share subject to deduction of appropriate withholding tax.

Market Reaction: The investor reaction to 1Q24 performance was positive as the stock surged 10.00% to N33.00 versus a 0.51% gain for the All-Share Index on 29/8. However, the stock declined 1.52% to N32.50 versus a 0.08% loss for the All-Share Index on 30/8.