June 3, 2024/Cordros Report

Flour Mills of Nigeria Plc (FLOURMILL) released its 2024FY audited results yesterday (June 2nd), reporting a 99.2% y/y decline in PAT, with accompanying EPS of NGN0.06 (2023FY: NGN7.25). The decline in earnings is attributed to the surge in FX losses (+336.6% y/y to NGN137.46 billion) in the period.

In 2024FY, FLOURMILL’s revenue grew by 48.8% y/y, to a record NGN2.29 trillion. Specifically, the outturn was driven by significant expansion across the Food (+50.9% y/y), Agro-Allied (+17.2% y/y), Sugar (+84.3% y/y) and Support Services (+38.9% y/y) business segments. We attribute the broad-based topline expansion to (1) a favorable volume mix across FLOURMILL’s product portfolio, (2) the group’s strategy of maximizing output from its business-to-consumer channel, and (3) price increases averaging c. 30.0% y/y.

Sequentially, revenue grew by 23.2% q/q in Q4-24, following expansion in all business segments – Food (+21.9% q/q), Agro-Allied (+6.1% q/q), Sugar (+28.5% q/q) and Support Services (+130.8% q/q).

Gross margin (+40bps y/y) improved to 11.9% in 2024FY (2023FY: 11.5%), propelled by the faster growth in revenue (+48.8% y/y) relative to cost of sales (+48.2% y/y). The growth in cost of sales was likely exacerbated by the pass-through impact of currency devaluation and the highly inflationary environment. Thus, EBITDA (+256bps y/y) and EBIT (+273bps y/y) margins expanded to 10.6% and 9.1%, respectively, amid a 26.7% y/y increase in operating expenses.

Net finance costs increased markedly by 271.2% y/y, following a 274.7% y/y increase in finance costs. We attribute the surge in finance costs to the FX loss (+336.6% y/y to NGN137.46 billion) recorded in the review period.

Overall, 2024FY PBT declined by 90.8% y/y to NGN3.95 billion (2023FY: NGN42.75 billion). Following a tax expense of NGN407.70 million (2023FY: NGN13.25 billion), PAT printed NGN3.54 billion (2023FY: NGN29.50 billion).

Management call today (June 3rd 2024) at 1.00 pm Nigerian time. Click here to register.

Comment: FLOURMILL continues to achieve broad-based expansions across all its business units and strong operating profits despite challenges like elevated input costs and FX volatility. For 2025E, we believe the company is well-positioned to sustain topline growth through further price increases, amid strong support from the group’s diverse product portfolio and the inelastic demand for their products. While the group’s efforts to expand its distribution channels have been fruitful, we are concerned that the company’s elevated costs may hinder margin expansion. Additionally, further naira weakness and FX illiquidity are likely to lead to weaker earnings. Our estimates are under review.