FMN: Production Expansion Thrusts Revenue
Kayode Tokede
Flour Mills of Nigeria (FMN) reported a significant increase in revenue amid its recent acquisition of a 71.69per cent stake in Honeywell Flour Mills Plc. (HFMP) and a 5.06per cent stake in HFMP held by First Bank of Nigeria Limited.
The diversified agribusiness company in its unaudited result and accounts for half year (H1) ended September 30, 2022 advanced in its top line performance as revenue from its food, Agro Allied, Sugar and Support services increase significantly.
The group reported strong revenue growth across business segments, despite the challenging macroeconomic environment.
FMN reported N720.6billion revenue in H1 2022, representing an increase of 38per cent from N5522.82 billion reported in H1 2021, propelled by a favourable mix and some exchange related pricing. The company recoded a strong revenue growth averaging 36 per cent across all business segments.
Revenue from food grew by 32.07 per cent to N445.67 billion in H1 2022 from N337.45 billion in H1 2021, while revenue from agro-allied closed H1 2022 at N153.9 billion, an increase of 52.3 per cent from N101.06 billion reported in H1 2021.
In addition to revenue, FMN’s reported N104.66 billion revenue from Sugar in H1 2022 from N69.5 billion in H1 2021, as revenue from “Support service” moved to N16.34 billion in H1 2022 from N14.81billion in H1 2021.
Food segment Remains Solid
According to the company, operating performance in the Food segment remained solid, despite a challenging environment with increased input prices and somewhat softening volume base profit before tax for Agro Allied remained at the level achieved the last year.
To enhance revenue by 32 per cent growth, the company increased sales through mix and selective pricing behind foreign exchange whereas overall food volumes somewhat softened, increased rural penetration through deployment of additional containers, tricycles and sales force automation and regional penetration of Break fast cereal which expanded into East and Abuja and “Auntie B” Semo into the East and North
The company added that the Honeywell business is being restructured and integrated into the Group, stressing that focus has been on ensuring the commercial strategy and resulting integration plus manufacturing stability.
“This together with restructuring the balance sheet plus reducing the FX exposure and realizing synergies are the current focus areas,” the company explained.
On the heels of hike in inflation rate, the company reported N651.8billion cost of sales in H1 2022 as against N468.41billion in H1 2021, driven by N583.34billion material costs compared to N422.8billion reported in H1 2021.
The Oil and Fat segment grew revenue by 98per cent due to increase in volumes arising from amplified toll milling activities in the North and West to meet up with customer demand.
FMN’s fertilizer business recorded a very strong 74per cent growth in revenues and 50per cent profit growth.
This was driven by: Increase in volumes and reduced costs in Q2’23 following the commissioning of the new Fertilizer blending plant in May 2022 with 90MTPH capacity and continued commercial nimbleness and ensuring customers needs are addressed Introduction of new SKU in Kaduna plant
In August 2022, a Feed milling plant with 120,000 MTPA capacity was commissioned in Kaduna; this has contributed to increased volume and reduced cost in Q2’23. In addition, the new Kaduna Eagle Plant also began production with a capacity of 120,000 tons.
Double digit growth
The Golden Sugar of FMN recorded double digit growth in revenue (51per cent) due to increase in volume and various customer engagement efforts to drive customer loyalty Consequently, there was a rebound in the segments profit before tax behind the revenue growth and a more normalized trading environment.
The company said it would continue to see persistent demand for Brown sugar products from industrial customers in the North
“Additionally, the business continues to progress on its backward integration initiatives on Sugar production by engaging in continuous development of the upland area to expand the area under cultivation
“The Sugar business has been unaffected by the recent flooding with the interventions prepared over the last two years withstanding the very strong flooding this year,” the company explained.
Support Segment Growth
The packaging business delivered 12 per cent growth in revenue during the review period, despite an overall reduced demand for consumer goods packaging material The business continues to prioritize high value bags towards margin build up
Golden Transport Company, the transportation and logistics business achieved 24per cent revenue growth driven by acquisition of new trucks and management of Honeywell trucks
The Port business presented solid results when neutralizing the FX revaluation impact The business improved relationship with regulatory agencies to accelerate berthing and sailing of vessels and involved in partnerships with neighbouring terminals.
Consequently, Cost of sales/Revenue closed the period under review at 90.4per cent as against 89.6per cent reported in the corresponding period.
FMN thus closed the period with N68.8 billion gross profit, an increase of 26.4 per cent from N54.4 billion in H1 2021. The increase in gross profit positioned gross profit margin to 9.5per cent in H1 2022 from 10.41per cent reported inn H1 2021.
Operating performance in the Food segment remained solid, notwithstanding a challenging environment with increased input prices and a somewhat softening volume base.
The group’s total operating expenses rose by nearly 14 per cent to n26.03 billion in H1 2022 from N22.84 billion in H1 2021, driven by administrative expenses.
Operating income closed H1 2022 at N30.33 billion, representing an increase of 26.1 per cent from N24.05 billion in H1 2021.
Finance cost grew by 139.3 per cent to N22.32 billion in H1 2022 from N9.33 billion, attributable to hike in interest income paid on borrowed funds.
This led to drop in profit before tax to N8.38 billion in H1 2022 from N15.48 billion reported in H1 2021, due to Honeywell related transition and integration related costs The performance of the base FMN business is in line with last year.
The company in its report said, “The Honeywell transition is ongoing and on track, with some transitional costs which combined with the trading environment led to a N7.4 billion loss for the first 6 months The balance sheet is being refinanced and the foreign exchange exposure reduced, which together with the reduction of input costs plus a combined commercial strategy and other synergies will lead to a long term strong business in line with the projections.”
strategic growth opportunities
The Group said it is dedicated to achieving strategic growth opportunities, both organic and inorganic, within the sector
It also maintained that commodity prices and input costs are decreasing as the impact of the war between Russia and Ukraine is lessened with the overall supply chains adjusting Any potential FX adjustments over the next months are being closely followed.
It added that the performance of Sweeteners is foreseen to strengthen over the next two quarters, with the value chain being very attractive in the long run, stressing that Honeywell operations are stabilizing and anticipated to be a very strong revenue and profit stream in the long run after integration of the operations and the balance sheet restructuring are concluded.
Speaking on the group’s strategic imperatives in the years ahead, the Group Managing Director/Chief Executive Officer FMN, Mr. Boye Olusanya, in a statement said, “FMN continues to meet the needs of the consumers with our sustainable route-to-market structure and new product initiatives across our touchpoints.
“As we can see in the H1 22/23 report, the Sugar segment recorded a significant rebound compared to H1’21/22, a clear demonstration of the Group’s continuous and significant investment in the sugar value chain and across all our key value chains and sectors.”
He added that, “As the Group continues to make headway in our backward integration activities through various strategic efforts, we remain committed to feeding the nation, every day.
“Also, our investment in product innovation and supply chain optimization was sustained in furtherance of the execution of our long-term strategy.
“As part of the Group’s strategic roadmap, FMN continues to put in place a business continuity plan to safeguard its supply chain and food production processes to ensure that Nigerians can continue to have access to their daily nourishment”.
