Flour Mills of Nigeria Records Sky High Earnings Jump in 2021

Flour Mills of Nigeria Records Sky High Earnings Jump in 2021

Flour Mills of Nigeria Plc records sky-high earnings jump in its audited financial statement for 2021 submitted to the Nigerian Exchange. The leading consumers’ goods producer boosted its topline while strong investment income drove its sterling performance in addition to cost reduction efforts.

The result indicates that the food processing company, notably a pandemic winner, grew revenue at such a faster rate than costs profile. Profit after tax expanded remarkably by 126.0% year on year to NGN25.72 billion – the highest on record, according to Cordros Capital.

The robust earnings performance was reinforced by 34.5% growth achieved at the topline and 52.6% jump in investment income. Consequently, Flour Mills of Nigeria’s earnings per share (EPS) jumped more than 39% from N2.55 in financial year 2020 to N3.55.

Following its impressive outturn in the year, the board has proposed a final dividend of N1.65 per share, which is 25 kobo above N1.40 paid in 2020, translating to a dividend yield of 5.6% based on the last closing price of N29.60.

Flour Mills of Nigeria Records Sky High Earnings Jump in 2021

According to its audited statement, the company was able to grow revenue by 34.5% year on year to NGN771.61 billion. Analysts at Cordros Capital hinted that the revenue growth was driven by substantial growth across the company’s food, agro-allied and sugar business.

Specifically, revenues from food segment increased by +33.5%, agro-allied jumped 32.2% and turnover from sugar business segment increased +27.7% year on year.

Similarly, revenue from support services surged by 136.9% year on year, Cordros Capital said this is the highest in at least ten years.

“Our channel checks revealed that the company’s impressive performance was underpinned by diverse and new product offerings across five value chains – grains, oils & fat, sweeteners, proteins and starches”, Cordros Capital stated.

Dissecting the audited result, analysts see that the solid topline growth was further supported by the new advertisement campaigns, restructuring of the agro-allied business segment and accelerated expansion in the B2C channel.

Amidst cost management effort, the consumers’ goods company’s gross margin increased by 207 basis points to 13.8% year on year in 2021, as topline growth of 34.5% outpaced the increase in the cost of sales.

The company’s audited report shows that costs of sales expanded by 30.9% as analysts noted that the slower growth in sales cost reflects the company’s improved operational efficiencies amidst the challenging business environment.

Flour Mills of Nigeria’s gross profit jumped by 62.3% year on year to NGN106.76 billion while earnings before interest tax depreciation and amortisation (EBITDA) advanced 33.9% to N74.54 billion in 2021.

However, the EBITDA margin pared by 5 basis points to 9.7% due to 26.1% growth in operating expenses as selling & distribution and administrative expenses increased by 30.2% and 24.4%  respectively.

“We note that the company also recorded a net operating loss of NGN15.53 billion in 2021 compared to a net operating gain of N4.91 billion in 2020, limiting the trickle-down impact of the strong revenue growth. We imagine that the loss was driven by the impact of currency devaluation on foreign currency payables”, Cordros Capital stated its equity report. 

It said FLOURMILL’s earnings were further boosted by 6.65% moderation in finance costs following a reduction in interest on bank loans from N15.18 billion in 2020 to 9.89 billion in 2021.

In addition, analysts highlight that the N30.00 billion bond issued by the company moderated additional borrowings during the period.

Due to cheap funding, Flour Mills of Nigeria’s net finance cost declined by 14.7% as company’s profitability was further supported by a 52.6% surge in investment income.

Overall, Profit before tax increased by 112.6% to N37.19 billion from N17.50 billion while profit after tax rose by 126.0% despite an 87.5% year on year increase in tax expense.

“We like that the company maintained broad-based improvements across all business units, reflecting positive results from product innovations, investments in its route to market strategy and operational efficiencies.

“Similarly, the company completed the restructuring of its agro-allied segment, which in our opinion, will continue to support revenue growth. However, we note that the reopening of land borders, weak macroeconomic fundamentals, and elevated operating cost remains a significant headwind to volume growth and profitability.

“From a market standpoint, we expect investors to react positively to the company’s solid earnings”, Cordros Capital stated.  

Flour Mills of Nigeria Records Sky High Earnings Jump in 2021