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FRIDAY EKEOBA
The downturn in the domestic economy activities might have started to take its toll on the manufacturing sector as Flour Mills in its fourth quarter result announcement
According to FBN Research, there is the likelihood that the flour going concern will review downward its consensus forecast profit-before-tax for 2017.
In a filling to the Nigerian Stock Exchange during the week, Flour Mills posted a material loss of N8.3 billion and N4.3 billion for its pre-tax and after-tax losses for Q4 respectively.
It will be recalled that the company recorded a profit-before-tax and profit-after-tax of N4.0bn and N6.3 billion in Q4 2015.
According to the company’s books before the NSE submitted for verification, “the pre-tax loss was mainly driven by a combination of factors including a 58 per cent year-on-year spike in other (non-operating) losses, a 49 per cent year-on-year rise in interest expense to –N5.0billion and to a lesser extent a 359bp contraction in gross margin to 12.6 per cent.
“These negatives completely offset a 22 per cent year-on-year growth in sales to N78.9 billion and a 25 per cent year-on-year reduction in opex.
Further x-ray of the flour giant financial statement showed that sequentially, sales declined by 8 per cent quarter-on-quarter.
Commenting on the company’s financial position, FBN Research said though Flour Mills full year basis sales were up by 11 per cent year-on-year to N342.6 billion, noted that a N23.7 billion gain on disposal of FMN’s 15 per cent equity stake in UNICEM was helpful to the company’s bottom-line, “PBT and PAT both grew by 49 per cent year-on-year to N11.5billion and N14.1billion respectively. The 2016 PBT came in slightly behind consensus forecast of N13.6 billion.
The management of Flour Mills has proposed a dividend per share of N1.0, 52 per cent lower than the N2.10 dividend declared by the company in 2015. The DPS implies a dividend yield of 4.7 per cent and a payout ratio of 17.9 per cent.
Giving an insight on the losses posted by Flour Mills in the period under consideration, FBN Research explained that since the bulk of FMN’s raw materials (particularly wheat) is imported, the adoption of a more flexible exchange rate regime by the CBN and the consequent downward shift in the naira exchange rate to around N295 per US dollar from N197.50 previously, severely impacted its cost of sales and was the primary driver behind the gross margin contraction. “This is in line with the trends seen with other consumer goods firms that have reported earnings so far. We also believe that a large chunk of the other (non-operating) losses is most likely related to fx. Although the company’s backward integration strategy through investments in sugar, palm oil, rice, sorghum amongst others is expected to address its import dependence, we do not expect these to have a material impact on profits in the near-term. As such, given FMN’s import dependence, we see downside risks arising from the increased volatility of the naira exchange rate on the interbank market”, it added.
