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Flour Mills: Profit drops despite strong revenue

Flour Mills: Profit drops despite strong revenue
July 13
10:54 2017
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Flour Mills of Nigeria sustained a further slowdown in profit in the final quarter and profit dropped faster than projected at full year ended March 2017. This was in spite of the fastest revenue growth the company has seen in three years. Sales revenue accelerated in the final quarter as profit decelerated and closed slightly above projection.

Costs moderated generally at the end of the year relative to sales revenue but the absence of a windfall from sale of investments subdued the improvements. A gain of N23.73 billion on disposal of investment in associate had saved the company from a potential huge loss in the preceding year. Its absence in the just concluded financial year accounted for the profit drop.

Two cost elements however remain huge to the detriment of profit margin. These are cost of sales and interest expenses, both of which claimed about 94% of sales revenue at the end of the year.

As projected, the company achieved the strongest revenue growth in three years at the end of the 2017 financial in March. Sales revenue amounted to N524.46 billion, which is a rise of over 53% and just 1% above the projected figure of N519 billion. This represents a major acceleration from the growth of 11% in 2016.

Food products accounted for over 80% of sales revenue in the year. Other revenue lines include agro allied, packaging, port operations/logistics and real estate. Its food products include flour, pasta, noodles, edible oil and refined sugar.

Despite that cost of sales remained huge at N457.78 billion at the end of the year, it moderated relative to sales revenue. It grew at a slightly lower pace than sales revenue at 50% compared to 53% and therefore claimed a reduced share of turnover. That jerked up gross profit in the year, which rose by 77.3% to N66.69 billion.

All other cost lines followed the moderating pattern and the favourable cost behavior was crowned by a drop of 81% in net operating losses to N1.49 billion. That spurred a big leap in operating profit, which multiplied more than four and half times to N41.44 billion at the end of the year. This represents a significant improvement in the core business of the company in the 2017 financial year.

Finance cost remained huge at N32.53 billion at the end of the year though at an increase of 45.2%, it did not encroach on revenue during the year. It nevertheless consumed 78.5% of operating profit. The company’s balance sheet debts have expanded from about N165 billion at the end of the 2016 financial year to N242 billion in 2017.

The drop in profit in the year was therefore accounted for exclusively by the impact of the gain on asset disposal in the preceding year’s figure. The company was able to convert all costs saved into profit in 2017. In the preceding year, operating profit could not meet one-half of finance expenses and without the gain on disposal of investment, the company would have had to borrow to pay interest expenses.

Flour Mills of Nigeria closed the 2017 financial year with an after tax profit of N8.84 billion, which is a drop of 38.7% from the prior year’s figure. This represents a wider margin of drop than the projected figure of N10.4 billion. The company had reported an after tax profit of N14.42 billion for the 2016 financial year.

The company earned N3.30 per share at the end of the 2017 financial year, down from N5.57 per share in the prior year. It paid a cash dividend of N1 per share for its 2016 financial year. No dividend was announced yet by the company for the 2017 financial year at press time.

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Copyright 2017 TheCable. Permission to use quotations from this article is granted subject to appropriate credit being given to www.thecable.ng as the source.
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Sept 19, 2017USDGBPEUR
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