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Flour Mills Grows Revenues With Focus On Food Business

Posted: Jul 25, 2016 at 4:30 am   /   by   /   comments (0)

Kirk Leigh

Lagos – That the economy is technically in recession is no news. But there are sectors like food, which thrive despite downsides to the economy.

According to Maslow hierarchy of needs, food remains an item that must be demanded for since people must eat. That seems to be the case with Flour Mills of Nigeria Plc, which in spite of raging inflation and economic contraction grew 11 percent in revenue in the last financial year ended March 2016 and coasted home with handsome profits to boot.

In a period where inflation averaged 14.3 percent, Flour Mills, a company that plays in the food and beverages sector of the Nigerian Stock Exchange (NSE), was able to grow its revenue to N342.6 billion from N309 billion, which it says was driven by volume growth and efficiency. Analysts equally attribute much of the growth to the agro-allied business of the company that contributed about 23 percent to its revenue. It would be recalled that the company is refocusing its business to backward integration into the agro-allied arena, divestment from less value adding businesses like its cement business and increased focus on its foods business, which is now 70 percent of the business.

Rising revenues were probably helped by new food products introduced during the year including Daily Instant Cereal, Golden Penny Margarine and Golden Penny Vegetable Oil.

At 11 percent, revenue growth for the 2015 year ending March 2016 was more than the 7 percent achieved the year before even if the best year for revenue growth was 2013 when the line item grew 17 percent.  The company’s gross profit margin has been dropping over the years on escalating cost of goods sold, which has risen to the highest point in the last ten years.

Gross Profit margin or the much the company could glean after figuring the cost of selling an item stagnated at 11 percent compared to the previous year but the cost of goods sold rose 11.5 percent to N305 billion from N273.4 billion.

The concomitant effect is a drop in gross profit, which went down to N35.4 billion from N43.66 billion, the lowest in the last five years. Earnings before interest tax, depreciation and amortisation (EBITDA) inched to 8.2 percent from 7.4 percent, signalling better earnings from operations including operating cost on a marginal basis. This is as operating costs and operating income are up.

Despite the thin differences between operating cost and operating income, net profit shut up by a curious 331 percent from N9 billion in the prior year to N14.62 billion.

The company was quick to mention that the rise is attributable to the sale of its cement company, UNICEM.

The company was able to maximise returns in the period than the previous year as returns on assets, capital and equity improved: return on assets grew to 4.2 percent from 2.8 percent; return on capital rose to 11.2 percent from 8.4 percent and return on equity.