Analysis: Honeywell Flour Mills 2013 H1 Results Reflects Stiff Competition and Rising Debt Cost

Honeywell Flourmills  2013 H1 Results ↓

Honeywell Flour Nigeria Plc released its 2013 to September H1 Interim results showing revenues rose 27% from N22billion to N27.8billion YoY. Gross Profit also rose 28.6% from N3.7billion (2012 H1) to N4.7billion (2013 H1). Pre-tax profits will however drop 26% from N1.8billion (2012 H1) to N1.3billion (2013 H1).

Key Highlights[upme_private]

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• Honeywell was able to keep Gross Profit Margins at 17% as it did a year before and at then end of the financial year.
• Operating expenses was however high as it sliced off 61.5% of Gross Profit compared to 52% a year earlier. A lot of this point to the highly competitive industry in which it operates. The company is obviously spending a lot to maintain market share as it ramps up advertising and increase distribution channels.
• Finance cost which we predicted will rise this year (compared to last) was up over 100% to N669million. Finance cost was now 36% of Gross Profit compared to 3% a year earlier.
• Trade and other receivable rose sharply by 37% to N9.4billion. This is a worrying sign especially if the breakdown shows it is mostly trade. This could indicate the company is finding it a little difficult picking up cash from sales from its distributors
• Its no wonder working capital remains stubbornly high at a negative N7.5billion
• Honeywell’s debts is still high at N32billion taking Debt to Equity up to 1.7x
• Despite some of the issues mentioned above, it is important to note that Honeywell’s revenue growth is currently the highest when compared to Dangote Flourmills and Flourmills of Nigeria. It still has a long way to go at eating into the Flour Mills market share but this result indicate it is fast catching up on Dangote Flourmills.
• In terms of profitability its profit margin of 3.6% puts it somewhat at par with Flour Mills of Nigeria Plc. The flour Mill industry continues to be a very challenging and competitive one with their major competition coming from rival private companies with better product brand mileage and sophisticated distribution channels.
• Honeywell closed the week ended December 20 down 3.4% to N3.38. Its P.E ratio is 9.4x and PB ratio 1.4x.
• It is a company currently not on our radar as we continue to watch events in the industry. We currently do not like highly competitive industries, especially those in the consumer goods sector open to multiple entrants and frequent government interference.

Honeywell Flourmills released its 2013 H1 results in the website of the NSE[/upme_private]