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Monday, July 4, 2022

Flour Mills to inherit Honeywell’s N78.55bn debt pile

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Flour Mills of Nigeria Plc, the company that acquired a majority stake in Honeywell Flour Mills could add to its debt pile as the would-be subsidiary has total borrowings of N78.55 billion in its balance sheet.

It was announced last week that Honeywell Group Limited (old parent company) or HGL will dispose of a 71.69 percent stake in Honeywell Flour Mills Plc or HFMP at an enterprise value of N80 billion to Flour Mills of Nigeria or FMN.

Investors are sanguine that the merger or coming together of Flour Mills Nigeria and Honeywell Flour Mills, two consumer goods giants, will produce the desired synergies needed to unlock the potentials in the food value chain.

It is important to analyze both so as to know what is at stake, and more importantly their financial strength.

As of the third quarter of 2021, Honeywell Flour Mills had total debts (both long and short) of N78.53 billion, which is 29.84 percent higher than 2020’s N60.48 billion.

It has a debt to equity ratio of 134.86 percent, which means it is highly leveraged and uses debt or external capital to finance its operations.

The more a company’s operations are funded by borrowed money, the greater the risk of bankruptcy, if the business hits hard times. Debt can also be helpful, in facilitating a company’s healthy expansion.

It is worthy to note that Honeywell Flour Mills’ interest coverage ratio stood at 1.09 times as at September 2021, which means the consumer goods giant’s ability to meet its interest expenses may be questionable.

The incoming parent company Flour Mills of Nigeria will be adding to debt that it has been reducing when it finally seals the deal to acquire Honeywell.

Already, Flour Mills of Nigeria has a total debt load of N128.66 billion, which is 10.16 percent lower than 2020’s N142.53 billion.

Of course, the proportion of debt in the capital structure of the largest miller by market capitalization in Nigeria has shrunk, and there are no threats to going concerns.

Debt to equity ratio reduced to 79.91 percent in September 2021, that compares with 187.69 percent in 2016, according to data gathered by MoneyCentral.

It is expected that the merger will consolidate the already existing marketing and distribution strategies capable of inducing volume growth.

Flour Mills of Nigeria plans to increase investments in regional distribution centres, targeting B2C segments – Noodles, Pasta and Semolina. The firms pasta business is established in the minds of consumers.

“The proposed transaction is aligned with our vision not only to be an industry Leader but a national champion for Nigeria. We believe that this will create an opportunity to combine the unique talents of two robust businesses,” said Omoboyede Olusanya, Group Managing Director of Flour Mills of Nigeria.

“As a result, we will have a better-rounded and more comprehensive skill set available to us as a combined diversified food business, thus enabling us to better serve our consumers, customers and other stakeholders, whilst providing employees with access to broader opportunities,” said Olusanya.

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