Honeywell Flour Mills is the only consumer goods firm to record a loss in the second quarter (Q2) having given in to rising input costs and global economic uncertainties.
The company posted a loss after tax of N2.36 billion for the year ended June, 2022 from a profit position of N150 million the previous year.
While there was an uptick in revenue as buoyed by price adjustments across key products, the huge cost of production prevented top-line (sales) impressive performance from trickling down to the bottom-line (profit).
For instance, Honeywell spent N0.102 on input cost to produce each unit of products, which is why it posted an operating loss of N780 million in the period under review.
The flour milling industry has been reeling with rising cost of raw materials, given its dependence on wheat and sugar imports.
Aside from the high demand for wheat by China following the reopening of the economy in 2021 that spiked prices, the Ukraine and Russia war compounded the woes of millers as both countries produce 40 percent of the grain which other nations depend on.
Of course, the energy crisis brought by rising diesel prices has balloon production costs for manufacturers who are hard hit by foreign exchange scarcity and deteriorating consumer purchasing power.
“Going forward, we expect the spike in global prices of wheat to continue to drive production costs of local industry players higher,” said analysts at Meristem Securities Limited.
“Thus, product prices are most likely to increase in the near term. However, considering the essential nature of these products, we maintain that demand will be sufficient to sustain revenue growth momentum. Increased production costs, could however impact profitability margins for the companies,” said the analysts.
Flour Mills of Nigeria, the parent company of Honeywell and largest miller by market capitalistion in Africa’s largest economy, saw a slow growth in profit as net profit margins reduced to 5.02 percent in March 2022 from 6.67 percent the previous year.
The slim profit margin stems from huge production costs as Flour Mills spent N0.95 on input cost to produce each N1 of products.