Honeywell Flour Mills Plc has recorded its first loss in seven years, a period that coincided with the recession of 2016, which laid bare a myriad of challenges manufacturers are facing.
Since costs are accelerating faster than revenue growth, the consumer goods giant finds it difficult to meet or pay its interest obligations as the unexpected decision of the central bank to raise monetary policy rate hike is expected to swell finance costs for companies.
The audited financial statement of the firm for year ended March 2022 shows it posted a loss after tax of N983.81 million from a loss of a profit of N1.12 billion the previous year.
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It is no longer making profit from core operations as earnings before interest and taxation (EBIT) dipped by 63.24 percent to N4.68 billion in the period under review from N7.64 billion.
Honeywell Flour Mills disappointing results is a harbinger that the consumer goods firms are feeling the pang of rising inflation, currency devaluation, foreign exchange scarcity, and supply chain disruption.
The second quarter results for the industry are most likely to be below expectation because the energy crisis and spiraling commodity prices brought on by the Russian/Ukraine war will be undermining profit margin.
For instance the war in the Middle East has sent the price of wheat to a 14 year high, and the price of diesel which manufacturers use to run generator plants in their factories and offices have been spiking. This is because diesel had been regulated, making its price move along with that of crude oil.
It should be noted that corporate profit growth in the first quarter was strengthened by a hike in the price of key products.
However, these firms may not find it easy passing on rising input costs in the form of higher prices on an already beleaguered consumers whose pocket has been squeezed by unemployment, utility bills, and inflation.
The headline inflation climbed further by 90bps to settle at 16.8 percent year on year (y/y) in Apr-22, from the previous print of 15.9 percent y/y in Mar-22, which is 12bps higher than our forecast of 16.7 percent, according to data from the National Bureau of Statistics (NBS).
Nigeria’s unemployment rate rose to 35 percent in 2021, according to a report by a credit rating agency, Agusto & Co. While the statistics office, the National Bureau of Statistics (NBS) is yet to publish the official labour data for the period, the 35 percent by Agusto & Co shows the jobless rate in Africa’s largest economy was up 6.06 percentage points from the 33.3 percent reported in 2020, when the impact of COVID-19 pandemic forced businesses to lay off staff.
The last time Honeywell Flour Mills posted a loss was in 2016, when the precipitous drop in crude oil price stoked a severe dollar shortage that tipped the country into its first recession in 25 years.
The millers’ total cost of production increased by 29.38 percent to N132.08 billion as at year end March 2022; interestingly, total cost was N47.01 billion in 2015,and the speed at which costs are growing is worrisome.
The company spent N0.96 on input cost to produce every N1 of product, according to MoneyCentral calculations.