[upme_private]Flourmills Nigeria Ltd released its 2013 to March FY results with revenue rising 17% to N301.9billion (2012 FY: N258.2billion). Gross profit however dropped 4.3% to N38billion (N39.7billion). Operating profit also dropped 305 to N12.7billion as operating expenses bit harder. Pre-tax profits at the end of the year was N11.1billion (2012 FY: N11billion). The company ended the financial year with an Earnings Per Share of N3.25 4.7% lower than the N3.41 it posted in 2012.
- The company finally ditched off its Cement importation business during the year. In the year ended March 2012, it’s Cement Importation Business contributed about 12% of Revenues of N30.6billion and delivered a profit margin of 20.2%. On a closer look though, the Cement business revenue contribution this year was 14.7% lower than the N35.9billion it posted in 2011. The decision to get out of the business points to the backward integration policy of the Government who now favour a combination of Cement manufacturing and importation.
- Flourmills Nigeria Plc however still has significant interest in the Cement business owning about 28.15% of Unicem Ltd, the Cement Manufacturing company located in Calabar.
- By the way, it’s N19billion investment in Unicem is yet to add to bottom line. Flourmill’s own share of losses in Unicem is currently about N18.6billion. In the current year under review it lost N1billion which was an improvement over the N2.8billion of 2012 and N14.8billion of 2011. Unicem also increased its capacity to 5million metric tonnes from 2.5million and switched from LPFO to Natural Gas. All of these give the Management of Flourmills believe that their investment is not eroded and believe all the efforts put into Unicem will start to materialise soon.
- Following the closure of the Cement division, Flour Mills Plc concentrated more on its food business relying on it to drive up sales. The food division thus contributed 73% of Revenue or N221.1billion of the total revenue of N301billion. This was also a 26% increase over the prior year an indication that their plans may perhaps be working. Despite improved food revenue it only contributed about 4.9% in profit margin.
- The low profit margin is mainly due to the company’s huge marketing and expansion of distribution networks. Products such as Golden Penny Pasta and Golden Noodles have both enjoyed significant advertising spend throughout the year.
- The Agro Allied sector which produces the likes of Fertilisers, Rice and Palm Oil products contributes about 17% of revenue or N50.8billion. This was also a 33% improvement over the N33.1billion it posted a year earlier. However, the segment only contributed 1.7% in profit margins. It will be interesting to see what the Livestock feed business contributed to revenue considering the massive floods last year.
- Cost of sales increased 20.8% during the period despite the winding down of the Cement Division. This also affected Gross Margins which dropped to 12.6% for the period compared to 15.4% in 2012.
- Operating profit margin also faired worse than the prior year dropping 30%. Whist the closure of the Cement division maybe a factor in this huge decline the current years Operating profit margin was also worse than that of 2012. Opex margin was 4.2% compared to 7% posted in the prior year.
- The company incurred about N25.2billion in operating expenses this period much of which they attribute to an increase in Selling and Distribution expenses. Selling & Distribution expenses increased 33% to N10billion during the period. This was also N3.3 for every N100 of revenue compared to N2.9 of every N100 in revenue in 2012.
- Admin expenses also rose 8.5% to N15.2billion (2012: N14billion) during the period. Depreciation cost the company excess of N8billion during the year as well.
- Income from other sources contributed an impressive N10.8billion for the company (2012: N4.8billion). And where it not for this the company would surely have been in a loss position. it will be interesting to see what these are made up of once their annual report is released. For now though, we only know Investment income is N5.4billion (from interest received) and other income N5.4billion
- The company owes about N132billion in external loans up 23% from the N107.4billion it posted in 2012. Their loan portfolio puts them behind the likes of Oando (N300billion) and Dangote Cement N164billion amongst quoted companies.
- This is also not flattering considering they still maintain a high debt to equity ratio of 1.58x. This is also a company that just raised N27.8billion in rights issue.
- The impact can be seen in the Interest cost which was N11.4billion up 34% from the N8.5billion it post a year earlier.Interest as a percentage of Operating profit will also rise to a whopping 90% of compared to 46.7% in 2012.
Balance Sheet & Cash flow
- Inventory turnover this year was 4.6x a slight improvement from 4.3x posted a year earlier
- The company working capital turned negative this year at N5.5billion compared to a positive N18.billion in 2012. Much of this is due to trade and other payables which increased by N20billion in the last one year.
- Flourmills continued with its huge expansion plans spending a massive N34billion in net investing activities. In fact N38.6billion was spent on Property Plant and Equipments an addition to the N39.7billion spent a year earlier. A lot of the expenditure in PP&E were in its New Mills in Apapa and its Agbara factory office. The Agbara factory is designated for the Golden Pasta business and has a capacity of 350,000MT per annum.
- Massive spending on investing has also put a strain on cash flows during the period. Cash flow from operations was N18.6billion but this is after still owing net payable (Trade debt less Trade payable) of N26billion. I estimate Ebitda cash flows to be about N11.5billion.
- Retained earnings remain strong at N36.1billion
Share price and dividends
- Flourmills propose dividend of N2 per share up 25% from the prior year. However, that amount on current share price of N86.3 gives a paltry dividend yield of just 2.3%.
- The current share price also delivers a P.E of 29.6x which is 2.2x above the NSEAI average P.E of 13.4x. The share price has also remained flat since July 22 2013.
- Price to book ratio is also 2.5x.
- The market value of the company is currently N205.8billion. My estimated Ebitda of N11.5billion on a multiple of 5 would be about N57.5billion. The company is thus trading at about 3.5x its Ebitda multiple
- Flourmills Nigeria Ltd has one of the largest operations of any Quoted Nigerian Manufacturing Company in terms of Revenue. It’s N301billion revenue tops Dangote Cements’s N298.4billion in revenues in their trailing financial year.
- However, the company was only profitable this year because of the N10.4billion it derived from Interest income and income from other sources.
- It is a company I would like to buy shares in considering its popular product lines which are a combination of consumer goods as well as Agro Allied products. Their products are well known with Nigerians. Competitio from the likes of Honeywell and Deli Foods may however continue to eat into market share if their expansion plans do not produce the results they desire.
- The current price is way of my valuation
Flourmills Plc released its 2013 to March FY results in the website of the NSE[/upme_private]
If an investor had bought Flour mills at N65 and with this analysis , is it advisable to sell off or hold as a long term stock?
Hold for the long term.