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Flour Mills cost Optimization Pays Off as Revenues Spike

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Flour Mills of Nigeria Plc sales growth relative to uptick in cost of production validates management success in achieving cost optimization amid the inflationary pressure, decrepit infrastructure, and unprecedented economic uncertainties caused by the coronavirus pandemic.  

For the first three months ended June 2020, Flour mills’ revenue was up 14.72 percent to N154.57 billion from N134.74 billion the previous year.

The growth at top line (sales) compares with a 9.09 percent increase in cost of sales, which resulted in 55.50 percent increase in gross profit to N25.55 billion in June from N16.47 billion the previous year.

Flour Mills makes money from its core operations, which means there is overall demand for its products, and it is also efficient in delivering those products or services.

Earnings before interest and tax (EBIT) rose by 11.07 percent to N11 billion in the period under review from N9.89 billion as at June 2019, while net income increased by 17.32 percent to N4.97 billion in the period under review from N4.23 billion the previous year.

The company has turned each Naira invested in sales into higher profit as net income moved to 3.15 percent in the period under review as against 0.31 percent the previous year.

Its net cash flow from operating activities spiked by 199.50 percent to N16.93 billion at period ended June 2020, which means it has the financial strength to finance its future expansion plans.

The result for the first quarter reveals a remarkable performance as the Group starts the year strong and built on a growth trends recorded in q4 2019/2020 financial year, according to Flour Mills.

“In line with strategy, our business remained resilient and continued to deliver value for shareholders while focusing on organic growth across all segment with continues focus on our Agro-allied division and local value add,” said the company.

MoneyCentral had reported that the decision of government to close the country’s borders so as to curb smuggling of products across borders is a boon for Flour Millers and its peer rivals as consumers are now forced to patronize premium products such as Food, Sugar and Agro-Allied.

There will be lesser impact of the Covid-19 crisis on operators in the industry since they manufacture products that are immune to the disruption.

On top the weak consumer spending and inflationary pressures undermining consumer goods firms, the coronavirus pandemic has tipped the industry over the edge.

“Looking beyond Q2-2020, we have a moderate outlook for topline performance across the sector in H2-2020. This is as we expect economic, activities to pick up from Q2-2020’s low,” said analysts at United Capital in a note to clients.

“Also, predicated on our assumption that the government would not be implementing another round of lockdown in H2-2020 and with earnings of most consumers under pressure, we estimate a moderate growth in demand for essential and non-essential items,” said the analysts.

The current economic fundamental doesn’t support consumer spending, and the high unemployment rate means it may take a while before consumers start to open their purse strings.

The International Monetary Fund (IMF) has announced that the Nigerian economy would witness a deeper contraction of 5.4 percent and not the 3.4 percent it projected in April 2020.

Unemployment rate rose to 27.10 percent in the second quarter of 2020, from 23.10 in the third quarter of 2018, according to a recent data from the National Bureau of Statistics (NBS).

Nigerian inflation accelerated for the 11th straight month in July as a weakened currency and continued border closures drove up food prices.

Consumer prices climbed 12.8 percent from a year earlier, compared with 12.6 percent in June, according to the statistics body.

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