Flour Mills profit climbs on disposal of investment in associate

Flour Mills Nigeria Plc said profit increased 57.86 percent buoyed by gains on disposal of investment in associate as the consumer goods giant sales succumbed to tough operating environment bedeviling firms in Africa largest economy.

For the year ended March 2015, profit was N8.46 billion compared with N5.36 billion the previous year.
Sales were down by 5.23 percent to N308.75 billion.
The company that produces pasta, fertilizer, and sells bagged cement through wholly owned subsidiaries made a gain on disposal of investment in subsidiaries in associate of N14.29 billion, which was a major boost to the bottom line.
Investors immediately reacted to the earnings surge as the company’s share price increased 2.74 percent to N29.50 at 11:57 am, on Wednesday on the floor of the exchange.
Flour Mills Nigeria had sales stunted by weak consumer spending caused by the crippling fuel shortages that spiked transport costs and insurgency in the north part of the country that hindered firms from pushing their products to the crisis region.
“Similar to most consumer goods companies, we believe that FMN weaker sales in Q4 2015 was due to a combination of the prevailing macro headwinds, weak consumer discretionary spend following increased  pressure on household wallets and increased competition,” said Tunde Abidoye, equity research analyst with FBN capital, an investment house, in an emailed statement to BusinessDay.
Flour Mills Nigeria’s cost of sales ratio was as high as 88 percent, which means the company spent N0.88 on input costs for every N1 generated in sales.
The huge production is caused by the devaluation of the local currency that made imported raw materials very expensive.
The price of wheat at the international market which is a major components in the manufacture of flour, were up.
Faced with 50 percent plunge in oil price, the Central Bank was forced to twice devalue the naira in the past two years in order to protect the foreign reserve from continued depletion.
The naira closed at N197.68 on the interbank market, representing 7 percent depreciation while the currency remained flattish at N242 at the parallel market.
“Nevertheless, talks of potential devaluation of the naira present significant downward risks,” said Abidoye.
Flour Mills distribution and selling expenses fell by 30.33 percent to N4.18 billion in 2015 from N6.08 billion last year  despite bad roads and the menacing gridlock at its Apapa head office.
Administrative expenses were up by 29 percent to N20.28 billion, however.
The company’s interest expense was up 16.15 percent to N18.70 billion in 2015 from N16.10 billion the previous year. The interest expenses were on loans granted to the consumer goods finance to finance most of its expansion.
Back in 2013, Flour Mills completed a number of projects including its 750,000MT sugar refinery in Lagos, worth N37.3 billion which were expected to boost revenues considerably in the medium term
In the 2014 Fiscal year, about N40.7 billion was further dedicated for additional refinery capacity in ROM Oils Limited Ibadan, expanded agricultural cultivation in line with the company’s backward integration programn and the introduction of new products in the different segment of the Nigeria market.
Flour Mills total assets were up 14.59 percent to N342.84 billion in 2015 compared with N299.18 billion last year. The company’s return on equity (ROE) moved to 9.67 percent in 2015 as against 6.41 percent last year.