Operational cost claims N106b Flour Mills' revenue

By Akinola Ajibade

Rising cost of operations has claimed the  N106billion generated  by Flour Mills of Nigeria in the second quarter of 2022. This marked 45 per cent increase over N340billion recorded in the first quarter of the year. 

Two major cost increases were said to have claimed all the increase in revenue and left after-tax profit flat at N5.5 billion.

According to the company's financial reports, its first-quarter operations for the period ended June 2022 show that input and interest expenses grew ahead of sales revenue and prevented the revenue gains from getting down to profit.

Input cost rose by over 47 per cent quarter-on-quarter to over N306 billion, representing an increase of N98 billion over the period. That claimed much of the N106 billion increase in sales revenue over the period, which limited the increase in gross profit to 29 per cent, amounting to a little over N33 billion.

Also, interest expenses surged upward by 79 per cent or N3.6 billion quarter-on-quarter to over N8 billion in reflection of both rising balance sheet borrowings and the rising cost of funds. That consumed almost the entire increase of N3.8 billion or 33 per cent in operating profit and left pre-tax profit flat at N7.3 billion at the end of the quarter.

There is a major piled up of interest-bearing debts by the company during the quarter to over N322 billion, a rapid expansion by as much as N164 billion from the closing figure of N158.7 billion at the end of the company’s last financial year in March 2022.

Apart from the two major cost increases, the company still encountered other rising expenses that squeezed margins down the line. These include selling and distribution expenses that rose by one-half to N4.6 billion.

Also, an increase of about 53 per cent in administrative expenses to N10 billion pressured margins and hindered profit improvement.

Some relief however came from a drop of 53 per cent in impairment loss on trade and intercompany receivables to N659 million and a decline of 16 per cent in net operating losses to N2.6 billion.

The two declining costs enabled the increase of N3.8 billion or roughly 33 per cent in operating profit to over N15 billion, which provided the strength to grow operating profit ahead of the 29 per cent increase in gross profit.

The cost increases left profit for the period flat at N5.5 billion – meaning that of the N106 billion increase in sales for the quarter, the company could not convert more than N50 million into profit. That slashed the profit margin from 2.3 per cent in the same period last year to 1.6 per cent at the end of the first quarter.

The company’s impressive growth in sales reflects improved performances across all its business segments. Management’s report at the end of the quarter said that the company’s four market segments – food, agro-allied, sugar and support lines were bolstered by volume growth with a favourable mix.

According to the company’s report, the implementation of innovative marketing strategies paid off by way of increased penetration into new markets in the food segment of the business.

The company invested in distribution routes expansion that created 8,000 new outlets in the first quarter while its fertilizer blending plant in Kaduna kicked off with a 90-tonne per hour capacity, the company’s report said.

Flour Mills completed its acquisition of Honeywell Flour Mills Plc during the quarter and the transitional process resulted in a N1.1 billion deficit for Honeywell and N0.4 billion one-off transactional cost for Flour Mills, according to the company’s statement.

The first quarter ended with earnings per share of N1.37 for Flour Mills, improving from N1.17 per share in the same period last year. The company paid a cash dividend of N2.15 per share for its 2021/22 financial year ending March 2022.