FSDH Initial Reaction: Flour Mills 2Q24 results
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November 1, 2023/FSDH Research

Key Performance Highlights:

• Flour Mills continued its robust top-line performance in 2Q24 as the company recorded a handsome 33.4% YoY increase in revenue to N508.3 billion. The robust growth was primarily driven by 50.5% YoY rise in Food segment to N349.8 billion (68.8% of 2Q24 revenue) and Sugar segment (16.3% of 2Q24 revenue) growing 66.6% YoY to N82.7 billion. The rise in revenue was further supported by Support Services (2.4% of 2Q24 revenue) registered a 16.8% YoY increase in revenue to N12.4 billion, partially offset by fall in Agro-Allied segment (16.3% of 2Q24 revenue), declining 28.2% YoY. The company reported revenue growth of 11.4% on a sequential basis, while the operating profit soared 146.9% QoQ to N17.6 billion in 2Q24 (1Q24: N7.1 billion).
   
• The gross margin improved by 154 bps YoY to 10.9% in 2Q24 as the cost of sales grew slightly lower at 31.2% YoY. The material costs that form 91.6% of the cost of sales grew by 35.3% YoY to N414.9 billion in 2Q24. Moreover, the Direct staff costs increased by 21.1% YoY to N8.6 billion in 2Q24. The company’s administrative expenses soared 73.1% YoY to N13.9 billion in 2Q24, while selling & distribution expenses vaulted 74.5% to N5.8 billion. Also, net operating losses increased 89.0% YoY to N17.7 billion due to higher foreign exchange losses soared ~2.0x to N28.7 billion in 1Q24. Although, Flour Mills reported an operating profit of N17.6 billion in 2Q24, a 16.9% YoY rise, the company’s operating margin shrunk by 49 bps YoY to 3.5% (2Q23: 3.9%), as the revenue growth was offset by a significant jump in costs.
   
• In 2Q24, the Company’s finance income ballooned 8.7x YoY to N1.6 billion, while finance costs surged 26.9% YoY to N18.0 billion resulting in net finance costs rising by 17.1% YoY to N16.4 billion. The company reported profit before tax of N1.2 billion versus N1.1 billion in 2Q23. On a segmental basis, the Agro Allied and Sugar segments reported a profit before tax of N3.2 billion (2Q23: N5.3 billion) and N1.1 billion (2Q23: N239 million), respectively. In contrast, the Food segment and the Support Services segment reported a loss before tax of N2.4 billion (2Q23: N4.5 billion) and N737 million in 2Q23. The company’s income tax expenses declined 54.9% YoY due to lower tax rate. Consequently, Flour Mills recorded a net profit of N816 million in 2Q24 versus N204 million a year back, with the net margin expanding 11 bps YoY in 2Q24 to 0.2%. The company reported an earnings per share of N0.06 1n 2Q24versus earnings per share of N0.60/share in 2Q23.

Market Reaction: The investor reaction to 2Q24 performance was positive as the stock surged 3.45% to N30.00 versus a 1.45% gain for the All-Share Index on 30/10.

Flour Mills Earnings Highlight 2Q24

Source: Company Financials, FSDH