[upme_private]Honeywell Flour Mills released its 2013 FY to March results showing revenue increased 20% to N45.7billion. Gross Profit also increased 22% to N7.9billion year on year. Operating profit also increased by a lower than would have been expected 5.8% year on year to N3.5billion as operating expenses ballooned to N4.3billion. Profit before tax managed to improve to N3.8billion compared to N3.6billion posted same period last year. Profit after tax at the end of the period was N2.8billion.
Key Highlights
- The company has had major challenges due to traffic congestion at its location in Apapa. They recently announced a plan to relocate to Ogun State
- The company also commissioned its new N10billion Flour mills in 2012 increasing its capacity by 62%. However, the impact of this expansion on the results was expected to be felt in the later half of the financial year ending March 2013.
- Revenue Increase of 20% is its highest in 4 years (2009/2008) when it increased revenues by about 55%
- The increase in operating cost by 40% is unprecedented in recent times and by far affected the company’s ability to post higher profitability. Operating expenses as a percentage of Gross profit was 55% this year compared to 48% in the prior year.
- It is important to note that in 2012 the FG increased levy on Wheat importation to 15% thus increasing duty by 20%. However, one would expect this effect to be felt in Cost of sales rather than operating expenses.
- The impact of capacity expansion is also noticeable in the ballooning of the company’s debt. They are highly leveraged with a debt to equity ratio of 1.6x compared to 1.2x the year before. I currently do not have details on the loan and expect to see more when they release their annual report. However, it appears the interest rate is low or the impact is yet to kick in. Gross Finance Cost is N528million is less than 2% per annum which is quite unrealistic except if the loans are grants.
- Inventories increased to N10billion from N4.9billion suggesting the company is producing a lot more finished goods. Inventory turnover for the year of 5.1x was however lower than the 7.1x posted in the prior year. It could be argued that the operation of the new mills in the final part of the year may have churned out products at increased levels that would be sold way into the first quarter of 2013 (June 2013).
- The company still boast slightly above average return on equity for the industry at 16% whilst also posting acceptable return on assets of 7%.
- Eps also increased to 5.5% 36kobo in the period under review.
- With a huge retained earnings of N8.1billion and share premium of N6.6billion I would expect to company to issue bonus shares. However, their debt overhang makes this highly unlikely especially when interest starts to kick in (assuming they are loans not grants). Only further equity injection can replace those loans.
- Working capital is also negative at N7billion which for me is an indication that the company will continue to rely on overdrafts to finance its high operating cost. In fact, N25billion of its N27billion in current liabilities is current due financial obligations
- Honeywell Four Mills (HONYFL:NL) market share remained flat at N3.2 as at blog time.
- Honewell Announced a proposed dividend of 16kobo per share and announced an AGM date of Sep 24, 2013. They will close their register on Sep 6, 2013
Honeywell Flour Mills released its 2013 to March FY result in the website of the NSE[/upme_private]
