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FLOUR MILLS OF NIGERIA H1'24 Earnings - Macro headwinds drag profitability.

Consolidating on its Q1 performance, FMN saw Q2’24 revenue grow by 33.4% y/y to ₦508.3 billion, bringing H1’24 revenue to ₦964.6 billion (up 34% y/y). This came in despite the waning macro environment.  Dissecting the company’s segmental performance, three of the company’s four segments posted double-digit gains while one segment saw a decline. Specifically, Food, Sugar and Support segments grew 50.5%, 66.6%, and 16.8% y/y to come in at ₦349.8 billion, ₦82.7 billion, and ₦12.3 billion respectively. 

Inflation, fx losses and finance costs pressure bottom-line.
To put in numbers, OPEX rose 73.5% y/y in Q2 to lift H1’24 OPEX to ₦37.0 billion. FX related losses grew 89.0% y/y in Q2 to drive up H1’24 fx losses to ₦43.5 billion. In addition, finance costs in Q2 rose 26.9% y/y to lift H1’24 finance costs to ₦34.6 billion due to an elevated debt profile. We however like to note that the pace of growth for these cost items were slower in Q2 than in Q1 thus, bottom-line for Q2 came in at ₦816.0 million (up 299.8% y/y). However, this did little to abate losses in H1 (H1’24 -₦8.5 billion vs H1’23 ₦5.7 billion) given the magnitude of losses experienced in Q1. 

Earnings Outlook: TP estimated at ₦32.14.
Our full year expectation for revenue comes in at ₦2.1 trillion (up 33.7% y/y) driven by higher food prices. For operating results, while we expect a deceleration in losses for subsequent quarters, we still expect operating results for the full year to come in lower y/y, given these cost pressures. To put in numbers, we project FY’24 EBIT to come in at ₦55.8 billion (down 43.0% y/y). Meanwhile given expectations for higher finance costs due to increased borrowings, we project a net loss of ₦5.3 billion (FY’23 ₦29.5 billion profit).