FSDH Initial Reaction: Flour Mills 3Q24 results
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January 30, 2024/FSDH Research

Key Performance Highlights:

• Flour Mills maintained its robust top-line performance in 3Q24 as the Company recorded a solid 51.1% YoY jump in revenue to N594.6 billion. The significant growth was primarily driven by a 38.5% YoY spurt in Food segment to N385.8 billion (64.9% of 3Q24 revenue) and Sugar segment (17.3% of 2Q24 revenue) rising 155.5% YoY to N102.7 billion. The rise in revenue was further boosted by an Agro-Allied segment (15.5% of 3Q24 revenue) surging 43.1% YoY to N92.0 billion and Support Services (2.4% of 3Q24 revenue) registering a 35.78% YoY increase in revenue to N14.0 billion. However, it is worth noting that the 3Q24 numbers also include Port Harcourt Flour Mills Limited, which was acquired on 24 May 2023. Moreover, the Company reported revenue growth of 17.0% on a sequential basis, while the operating profit soared 48.5% QoQ to N26.1 billion in 3Q24 (2Q24: N17.6 billion).
   
• In 3Q24, the gross margin soared 1,229 bps YoY to 21.0% as the cost of sales grew lower at 30.8% YoY. The material costs that form 91.0% of the cost of sales grew by 31.6% YoY to N426.9 billion in 3Q24. The Company’s administrative expenses marginally increased by 2.0% YoY to N13.1 billion in 3Q24, while selling & distribution expenses grew 28.1% YoY to N6.9 billion. Furthermore, the Company reported a net operating loss of N77.0 billion due to significant foreign exchange losses, which vaulted ~7.7x to N77.1 billion in 3Q24. Although Flour Mills reported an operating profit of N26.1 billion in 3Q24, a 20.9% YoY growth, the Company’s operating margin declined 110 bps YoY to 4.4% (3Q23: 5.5%), as a significant jump in foreign exchange losses offset the revenue growth.
   
• Finance income soared 7.5x YoY to N1.2 billion in 3Q24, while finance costs increased 24.0% YoY to N18.8 billion, resulting in net finance costs rising by 17.1% YoY to N17.6 billion. The Company reported profit before tax of N8.5 billion versus N6.6 billion in 3Q23. Looking at segments, the Food, Agro Allied and Support Services segments reported a profit before tax of N24.7 billion (3Q23: N2.1 billion), N22.2 billion (3Q23: N1.8 billion), and N3.1 billion (3Q23: N3.5 billion), respectively. In contrast, the Sugar segment reported a loss before tax of N21.5 billion (3Q23: N0.9 billion) in 3Q24. Flour Mills recorded a net profit of N8.7 billion in 3Q24 versus N4.3 billion a year back, with the net margin expanding 38 bps YoY in 3Q24 to 1.5%. The Company reported earnings per share of N2.65 in 3Q24 versus earnings per share of N0.90/share in 3Q23.

Market Reaction: The investor reaction to 3Q24 performance was muted as the stock remained unchanged at N43.95 versus a 2.22% gain for the All-Share Index on 29/1.

Flour Mills Earnings Highlight 3Q24

Source: Company Financials, FSDH

Note: 2Q24 and 3Q24 numbers include Port Harcourt Flour Mills Limited, which was acquired on 24 May 2023.