Honey Well Flour Poised for improved returns | Independent Newspapers Limited
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Honey Well Flour Poised for improved returns

Posted: Jun 19, 2015 at 12:00 am   /   by   /   comments (0)

Q3 2014 Performance Analysis:

The unaudited accounts of Honeywell Flour Mills Plc (Honeywell) for the period ended December 31, 2014 shows that its Turnover (T/O) decreased by 8.28% to N37.64bn, compared with N41.03bn recorded in the corresponding period of 2013. The decline in T/O was due to the price drop in the company’s turnover in Q3 2014 as uncertainty dominated the business environment and the recent challenges in the country during the period. The cost of sales decreased during the period under review by 7.77% to N30.69bn from N33.27bn recorded in Q3 2013.The decline in the cost of sales was due to the decline in the price of wheat in the international market. The cost of sales as a percentage of T/O rose marginally to 81.53% in Q3 2014 compared with 81.09% in Q3 2013. The administrative, selling and distribution expenses increased by 11.03% to N4.80bn in Q3 2014 from N4.33bn in Q3 2013. These expenses as a percentage of T/O increased to 12.76% in Q3 2014 from 10.54% in Q3 2013.

The Profit Before Tax (PBT) stood at N1.23bn, representing a decrease of 54.58% from N2.03bn recorded in the corresponding period of 2013. The decrease in the PBT was due to the exchange rate loss of about N903mn. The finance cost stood at N1.18bn as at Q3 2014, representing a decrease of 20.71%, compared to N1.49bn recorded in Q3 2013. The tax provision decreased by 61.76% to N257mn from N672mn, leading to a Profit After Tax (PAT) of N968mn in Q3 2014 from N2.03bn in the corresponding period of 2013, representing a decrease of 52.24%. The company recorded a loss in the 3months ended December 31st, 2014 (i.e. September – December, 2014).

The company’s profit margins fell in Q3 2014 compared with Q3 2013. This is as a result of economic challenges faced by the company in relation to the weakening foreign exchange rates and security challenges in the country which increased selling and distribution expenses.

The PBT Margin in Q3 2014 decreased over the Q3 2013 and the Financial Year ended March (FY), 2013 figure. The PBT margin decreased to 3.26% in Q3 2014 from 6.58% in Q3 2013, and also decreased from 7.69% as at FY 2014. Also, the PAT margin stands at 2.57% in Q3 2014, down from 4.94% in the corresponding period of 2013, and down from 6.08% as at FY 2014. This result also indicates that the percentage of T/O, PBT, and PAT in the Q3 2014 to the Audited T/O, PBT and PAT for the period ended December 31, 2014 are: 68.32%, 28.93% and 28.88%, respectively. Given the run rate, the company is unlikely to meet its previous year’s performance. However, we note that the company has expanded its operations to record good performance and return to shareholders in the medium to long-term. The company paid a dividend of 17 kobo in the FY 2014, representing a 6.25% increase from 16 kobo paid in FY 2013.

Our analysis of the historical performance trend shows that the company had maintained stable quarterly profitability in the last four (4) quarters, but experienced a significant dip in the latest quarter.

Our analysis of the historical performance trend shows that the company had maintained stable quarterly profitability in the last four (4) quarters, but experienced a significant dip in the latest quarter.

The total assets of the company which stood at N66.86bn as at Q3 2014 was financed by a mix of equities and liabilities in the ratio of 30.25% and 69.75% respectively. Our analysis of the liabilities shows that the short-term liabilities stood at N31.16bn, accounting for 66.82% of the total liabilities, while the long-term liabilities stood at N15.47bn, accounting for 33.18% of the total liabilities. The long-term liabilities constituted mainly of financial liabilities (borrowings), representing 71.19% of the longterm liabilities as at Q3 2014.


Strategic Focus:

The Honeywell Foods and Agro-Allied Industrial Complex under construction along Lagos-Ibadan Expressway, Sagamu, Ogun State for the production and processing of several food and agro-allied products with an emphasis on manufacturing valueadded human and animal feed products that utilize significant quantities of locallysourced raw materials including but not limited to Maize, Sorghum, Cassava, Soybeans and Palm oil. With this project, the company aims to efficiently compete with its competitors. The plant is intended to increase the production of all its products in order for the company to meet the growing demand in the Nigerian food market in the next few years.

The company’s Enterprise Resource Planning (ERP) software is expected to help the company achieve full integration of all the operations and processes of the business on a single online platform. Furthermore, the company believes that with its ongoing expansion and advertisement it should be able to capture additional market share from its major competitors.



The Honeywell Group is an indigenous Nigerian conglomerate engaged in select businesses in key sectors of the Nigerian economy and has also positioned itself as a strong player in the fast moving consumer goods market.

The company’s wholly owned subsidiary, Honeywell Flour Mills Plc (HFMP), is a major flour milling company in Nigeria, which in turn owns Honeywell Superfine Foods

Limited (HSFL) that specialises in the production, distribution, sales and marketing of superior quality food products within the country as its major business lines, while the group also engages in agro allied business, energy, real estate, services and infrastructure businesses, within the country.

Honeywell has a combined installed production capacity for wheat of 2,610mt/pd (Metric Tonnes per day) within the country with a capacity utilisation of about 70%. It currently has a wheat storage capacity of 42,500MT, while its monthly usage varies from 32,000MT to 40,000MT. Honeywell conducts its operations from two factory locations at Apapa and Ikeja in Lagos state. In Apapa, the factory is located on four hectares of land in the Tin Can Island Port Industrial Estate, a strategic location with good accessibility to international waters necessary for the importation of its raw materials.


Product Analysis

Honeywell has positioned itself as a strong player in the milling, processing & packaging of flour and other wheat based products. The company produces a wide range of superior quality products namely: Flour (Honeywell Superfine Flour and Honeywell Brown Flour), Honeywell Semolina, Honeywell Wheat Meal, Honeywell Pasta, and Honeywell Noodles.


Honeywell Superfine Flour:

Honeywell Superfine Flour is mainly produced for baking. The company provides efficient customer service, superior baking training and support for bakers. The product’s revenue increased by 18% in FY 2014. The company also believes that the product absorbs more water than other flour brands and therefore gives higher yield to bakers. Its main competitor, Flourmills has its own wide array of products which include: Golden Penny, Prime flour, Confectionary flour, Soft Biscuit flour and Noodle flour.


Honeywell Brown Flour:

Honeywell Brown Flour products are used in the baking of brown bread, which is slowly gaining popularity among consumers seeking a healthier option to white bread.

Brown Flour revenue grew by 32% in FY 2014 and is expected to continue its current growth pattern in subsequent years.


Honeywell Semolina and Wheat:

Honeywell Semolina and Honeywell Wheat meal are wheat-based ball foods that are easy to prepare, smooth to eat and enjoyed with any kind of soup. The brand has set new quality standards for semolina and wheat in the industry. The strong and increasing demand for the products attest to this. It is the market leader in this segment of the market.


Honeywell Noodles:

Honeywell Noodles sales grew by 37% in 2014, with the company actively competing with a number of brands including, Golden Penny noodles, Dangote noodles and Tummy Tummy noodles, with Indomie noodles and Chicken noodles being keen competitors. The company believes that with the ongoing expansion and advertisement it should be able to capture additional markets.


Honeywell Pasta:

Honeywell Pasta is made from the finest quality wheat semolina and is well accepted by consumers for its excellent quality and comes in very attractive packaging which stands it out on the shelves. It exists in two major types namely; Macaroni and Spaghetti. The Macaroni has three different cuts – Cavatto, Fusilli and Cornetti competing with other brands such as Penny Pasta Spaghetti, Twist, Spaghettini, Piccollini, Macaroni, Fideo, Eliche, Couscous, Bucattini and Bambini, and Dangote Pasta (Spaghetti and Macaroni).


SWOT Analysis:

Strengths: o Strong brand name.o Technical and financial relationship with parent company.

• Strategically located plant by the ports.o Use of high grade state of the art machinery in flour milling.

• Strong acceptability of its products in the market.

• Strong relationship with the bakers.


Weaknesses:o Declining sales revenue.o Has key man risk.

Opportunities: o Large market size in Nigeria and neighbouring countries.

• The CBN efforts to improve funding to the agriculture sector.o Drop in the price of wheat in the international market.

Threats:o Security challenges in the Northern region.o Restricted gas supply.o Foreign exchange risk.o Fragmented supply of some products.o Stiff competition in the market.

FSDH Research