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Tuesday, March 28, 2023

HoneyWell Profit Hits Four Year-High Despite Rising Production Cost

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HoneyWell Flour Mills’ has hit a four year-high on the back of increased sales and finance income as the consumer goods giant is reeling from rising cost of production.

For the first nine months through September 2021, Honeywell Flour net income surged by 73.03 percent to N353 million, the highest in four years, according data gathered by MoneyCentral.

Revenue was up 19.31 percent to N67.90 billion, as the company was exempted from the COVID-19 lockdown, due to the importance of their services.

However, HoneyWell Flour always sees rising production costs eat deep into sales, leaving very little profit to distribute to shareholders in the form of dividend and retain in the business to fund expansion programs.

For instance, the company spent N0.95 on input cost to produce every N1 of products, according to MoneyCentral calculations and based on the period ended September 2021.

Of course, flour millers import raw materials (wheat) to meet production, which exposes them to foreign exchange volatility that swells their cost of production.

Devaluation is a down risk to operating performance, and that is on top of inflationary pressures and decrepit infrastructure such supply chain disruption caused by congestion at the Apapa port.

A cursory look at the table shows the current profit is far below 2017’s N2.21 billion. Gross profit margin fell to 9.79 percent in September 2021 from 15.36 percent as at September 2020.

Earnings Before interest and taxation (EBIT) margin reduced to 4.85 percent in September 2021 from 6.09 percent as at September 2020.

There are structural issues that policy makers need to address so as to ameliorate the pains of manufacturers who have been complaining about foreign exchange scarcity and unstable power supply

Between 2019 to 2020, manufacturers spent about N143.29 billion on alternative power supply, says the Manufacturers Association of Nigeria (MAN).

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