FLOUR MILLS OF NIGERIA PLC Q1'21 - Earnings tamed by FX revaluation loss
Growth spurt in Agro-allied business sustains Revenue growth in Q1
Flour Mills Nigeria has released its Q1’21 results, continuing with positive momentum from the last financial year. The firm’s topline performance came in line with our growth expectation, expanding 15% y/y for the quarter to ₦154.8 billion (Vetiva: ₦152.8 billion). We believe this growth is as a result of sustained rewards from favourable border controls, which has proven a significant tailwind to demand for its edible oil segment and its agro-allied business segment as a whole.
Foreign exchange losses impair Earnings
Remarkably, in spite of pandemic and exchange rate driven inflationary pressures, cost of sales only grew by 9% y/y to ₦129.0 billion, taking gross margin 5ppts higher y/y to 17%. Furthermore, we believe that Flourmills has started to reap some benefits from its B2C marketing strategy, evidenced in its reduced distribution expenses. Meanwhile, the company recognized a ₦9.4 billion Fx loss after it revalued c.₦47.5 billion in foreign trade payables owing to the recent currency adjustment. Despite this revaluation, operating profit expanded 11% y/y to ₦10.9 billion, with operating margin coming in flat y/y. In keeping with their debt restructuring strategy, management refinanced ₦30 billion via commercial paper in April. Accordingly, net finance costs fell 29% q/q (+7% y/y) to ₦4.9 billion. After accounting for tax, PBT and PAT both grew 17% y/y to ₦6.5 billion and ₦4.4 billion respectively.
Increased growth expectation weighed down by Fx losses
Following the gradual relaxation of lockdown measures across the country, we are slightly optimistic of merely a mild slowdown in aggregate income levels (although we still maintain that income levels would remain somewhat depressed) and even expect an uptick in consumer demand in the second half of the year. We marginally adjust our FY’21 Revenue projection in line with the Q1 performance and estimate a 9% y/y growth for the full year (Previous: 7% y/y) to ₦624.8 billion.
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