Flourmills Reels From Higher Debt Costs as FX Loss Hit Profit

Flourmills of Nigeria Plc, the largest miller in Africa’s most populous nation has not been able to lower debt costs due to rising interest rates as a huge foreign exchange loss clamp down on profit.

For the nine months ended December 2023, Flourmills’ net income or profit after tax (PAT) dipped by 3,783 percent to N578 million from N10.10 billion the previous year.

The sharp decline at the bottom-line (profit) was brought on by N120.56 billion foreign exchange loss as a sudden devaluation of the currency that stoked exceptional losses is threatening the existence of manufacturers who will be raising prices of key products to stay afloat.

While it appears the company has a healthy balance-sheet because there are no threats to going concern and an auspicious future sales growth, a protracted high interest rate environment portends a risk to margin expansion.

The median interest coverage ratio for Flourmills stood at 0.95 at the end of 2021, substantially lower than 2022’s 1.36, according to data from MoneyCentral Intelligence. The figure is a measure of a company’s ability to repay its debts, with a ratio of at least 2 generally considered the minimum acceptable amount for a company with solid revenues. Analysts typically prefer a coverage ratio of 3 or higher.

A lot of bellwether firms took advantage of cheap debt to refinance during the COVID-19 era just before borrowing costs rose and tightening financial conditions.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has increased the benchmark interest rate (MPR) by 25 basis points to 18.75 percent from its initial 18.5 percent, representing the highest interest rate in 22 years.

Nigeria’s inflation rate for December rose to 28.92% from 28.20% recorded in the previous month according to the latest National Bureau of Statistics (NBS) inflation report.

The consumer goods giant saw sales spike by 39.63 percent to N1.55 billion in the period under review from N1.11 trillion the previous year.

There is a silver lining for Flourmills as future sales will be driven by product portfolio expansion, operational growth, and the introduction of locally produced brown sugar.

“For 2024FY, we remain optimistic about prospects for further topline expansion. We expect the recent additions to the product lines, increased production capacity, price increment, and extended distribution channels to drive revenue higher,” said analysts at Meristem Securities Limited.

Analysts at Meristem Securities project a full-year (2024FY) revenue of N1.85trillion from N1.54 billion, implying a 20.20 percent year on year( YoY) topline expansion growth.

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