Flour Mills of Nigeria Plc 9M’17/18 results – Lower costs drive margin growth

Flour Mills of Nigeria (FLOURMILL) 9M’17/18 results out – Turnover rose by 9.6% YoY to N427.5 billion, within our estimate of N436 billion (+1.9% deviation). After tax earnings rose by 79.0% YoY to N13.2 billion, lagging our estimate of N15.0 billion (-11.8% deviation).

Other highlights:

  • Q3’17/18 revenue declined by 4.1% YoY to N129.1 billion largely due to lower sales volume during the period. We also note the impact of logistics constraints from the Apapa gridlock experienced towards the end of 2017 on revenues. On a quarterly basis, revenues slumped by 13.7% QoQ.


  • Gross margins improved 320bps YoY and 370bps QoQ to 15.9%. We believe this is attributable to lower input costs following the easing of fx constraints and moderating agricultural commodity prices- which consequently eased cost pressures on margin. Thus, cost of sales as a percentage of revenue declined during the period to 84.0% (Q3’16/17- 87.4%; Q2’17/18- 87.8%).


  • Q3 EBIT margin also improved by 540bps YoY and 180bps QoQ respectively, although we observe a marginal increase in operating costs’ pressure on bottom-line as operating expenses to sales ratio rose 80bps YoY and 90bps QoQ to 4.8% during the period – we believe this is also connected to the logistics constraints due to the Apapa gridlock.


  • The impact of net finance costs on bottom-line remains significant as it grew 32.3% YoY and 22.5% QoQ to N8.7 billion during the quarter. The firm currently has debt (other than overdrafts) of about N166.5 billion mostly as a result of capital expansion projects in its backward integration program. The company is in the market to raise about N39.9 billion through a rights issue, which will then be used to deleverage its balance sheet so as to ease, even if slightly, the pressure of high finance costs


  • Notwithstanding the high finance cost reported, profit after tax grew strongly by 317.3% YoY to N3.9 billion (Q3’16/17- N900 million), although this was 18.9% lower than the N4.8 billion reported in Q2’17/18.


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