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Tuesday, March 28, 2023

Flour Mills Surmounts Covid-19 Headwinds as Profits Surge

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While other consumer goods firms have capitulated to the headwinds caused by the coronavirus pandemic, Flour Mill of Nigeria Plc has continued to record double digit growth in earnings.

For the first six months through September 2020, the company’s net income surged by 68.30 percent to N9.93 billion from N5.90 billion as at September 2019.

The border closure imposed by the federal government to curb smuggling of products out of the country is a boon for Flour Mills as consumers are forced to patronize local products.

“It’s a superb result. The prices of those products have increased in the local market. The company has benefitted from volume growth and an uptick in price,” said Abiola Gbemisola, consumer goods analyst with Chapel Hill Denham Limited.

Revenues for the food, agricultural products and services maker spiked by 31.14 percent to N355.10 billion in September 2020 as against N270.78 billion the previous year.

The largest miller in Africa’s largest economy has made more money from core operations as operating profit spiked by 41.08 percent as against N16.82 billion the previous year.

Investors are willing to invest in a firm that consistently records strong earnings even amid macroeconomic uncertainties.

The macroeconomic environment has been unfavourable over the past few years and this year has been particularly scorching due to the advent of the coronavirus pandemic.

The outbreak of the COVID-19 pandemic added a new layer of concern for most of the consumer goods players as lockdown in key revenue-generating and industrial states as well as the ban on inter-state movement depressed performance in the second quarter. ]

The disruption in global supply chains, naira adjustment, and FX market illiquidity throughout Q2-2020, added more concerns for companies with sizable import needs, according to analysts at United Capital Limited in a note to clients.

Manufacturers bemoaned the pile up of unsold inventory in their warehouses as consumer wallets are squeezed on the back of a hike in utility bills and protracted high unemployment rate.

Nigeria is likely to enter recession in the third quarter after its economy contracted 6.1 percent in the second quarter. The government expects the economy to shrink as much as 8.9 percent this year.

The gradual reopening of the economy after several months of lockdown could add impetus to Flour Mills earnings because there is movement of goods and services across the country.

However, the #EndSARS protests that paralyzed business activities in Lagos is a conundrum to the flour miller whose factories are located in the city.

Further analysis of the financial statement of Flour Mills shows gross profit margin increased to 14.15 percent in the period under review from 11.73 percent the previous year.

Operating profit margin increased to 6.68 percent in September 2020 as against 6.21 percent the previous year while net profit margin increased to 2.79 percent in the period under review from 2.17 percent the previous year.

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