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FLOUR MILLS OF NIGERIA PLC 9M'22 Earnings Release - Playing the long game

Over the past couple of years, the FLOURMILL’s strategy has consistently followed an investment-focused theme and is evident in the moves towards capacity expansion across businesses and across consumer segments. Accordingly, they have employed several market penetration strategies, improving route to market, geared towards increasing their market share. Consequently, the company’s margins have been deeply impacted, given the delayed return on expansions.

Food performance underwhelms: Revenue-wise, FLOURMILL has continued to make strides in the market, maintaining the leading position in the pasta and agro-allied segments. However, whilst the food segment is still the largest contributor to Revenue (at 62%) especially with the more recent combination with Honeywell, it has failed to deliver earnings commensurate to Revenues, as despite a 32% y/y growth in revenue to ₦445.7 billion, profit margin has remained unimpressive, deteriorating to 0.02% from 2% in the previous year.

Growth and optimization in the agro-allied business support bottom-line: The agro-allied segment (which contributes 21% to Revenue) has been the fastest growing segment over the past 3 years and has grown by 52% y/y in the H1 period. Growth has been driven by the Oils & Fats and fertilizer segments, which reportedly grew by 98% and 74% respectively in the period. Apart from being the fastest growing segment, the agro-allied business is the most profitable segment, as it is responsible for 89% of the Group’s profit.