FSDH Initial Reaction: Flour Mills FY24 results
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June 5, 2024/FSDH Research

Key Performance Highlights:

• Flour Mills recorded an impressive 48.8% YoY increase in revenue to N2291.6 billion in FY24, driven by robust growth across most segments via continuous product innovation and improved capacity utilization. All the reporting segments delivered double-digit YoY revenue growth. The highest YoY revenue growth of 84.3% came from the Sugar Value Chain segment (17% of FY24 revenue), followed by Food (66% of FY24 revenue), Support Services (3% of FY24 revenue), and Agro-allied (15% of FY24 revenue) at 50.9%, 38.9%, and 17.2%, respectively.
   
• Although the cost of sales grew 48.2% YoY, the gross margin expanded by 40 bps YoY to 11.9% in FY24, mainly due to increased sales across all segments. Flour Mills’ expenses rose as its administrative expenses increased by 16.8% YoY to N47.3 billion in FY24. Furthermore, there was a 52.6% YoY rise in selling & distribution expenses to N23.6 billion. The company’s net operating gain increased significantly to N8.0 billion in FY24 from a N21.8 billion net operating loss in FY23. Consequently, the company’s operating profit soared 112.9% YoY. Regarding segmental profitability, operating profit in the Food segment rose 40.5% higher to N39.3 billion, supported by a 171.2% YoY rise in Support services, offset by operating losses in Agro Allied and Sugar Value Chain segments.
   
• The rise in finance income (6.5x YoY growth to N4.6 billion) was offset by the substantial rise in finance costs (+274.7% YoY to N208.8 billion) and resulted in a massive increase in net finance costs by 271.2% to N204.2 billion. The increase in finance costs was driven by a substantial loss on exchange difference. Additionally, the loss Before Tax stood at N237 million in FY24. Nonetheless, the company recorded a net profit of N3.5 billion in FY24, owing to an N3.8 billion income tax credit this year. The company reported earnings per share of N0.06/share versus N7.25/share in FY23. Moreover, the board has recommended a final dividend of N1.80 for the financial year ending 2024.
   
• Flour Mills recorded a 72.0% YoY revenue growth in 4Q24 to N732.4 billion. However, the cost of Sales outpaced revenue growth to grow at 96.2% YoY, offsetting the revenue growth; the Gross Profit declined by 43.0% YoY to N42.1 billion in 4Q24. The company’s gross margin declined 1161 bps YoY to 5.7% in 4Q24. Furthermore, the company’s overall operating expense rose as the decline in administrative expenses of 5.8% was more than offset by a huge rise in Selling and Distribution Expenses of 130.2%. However, the company recorded a net operating gain of N128.5 billion in 4Q24 compared to a loss of N14.1 billion in 4Q23, which resulted in operating profit rising by 243.1% YoY to N157.3 billion in 4Q24. However, the solid operating performance was offset by the significant increase in finance costs (up 752.7% YoY). Consequently, the company reported a loss before Tax of N617 million in 4Q24. The company reported an 83.1% YoY drop in net profit to N3.3 billion in 4Q24. Finally, The company reported a loss per share of N0.16 per share in 4Q24, compared to 4.38 earnings per share a year ago.

Market Reaction: The investor reaction to FY24 performance was muted as the stock remained unchanged at N38.00 versus a 0.07% marginal loss for the All-Share Index on 4/6.

Flour Mills Earnings Highlight FY24