Operating Cost Plunges Honeywell Flour Mills to N8.91bn Loss

Kayode Tokede 

Despite growing revenue by 8 per cent, Honeywell Flour Mills reported one of its worst performances in over two years in financial year ended March 31, 2023, attributable to the significant increase in operating costs.

In 2022 financial year, the company declared N172million loss before tax, and in 2021, Honeywell Flour Mills posted N1.58 billion profit before tax.  

From the top-line performance, the company announced N147.35biillion revenue in 2023 from N136.43 billion in 2022, and it was driven by sales in Nigeria.

The company’s business operating segments are identified by three factors located at Apapa, Ikeja, and Sagamu. The Apapa segment manufactures Flour, Semo, and Wheat meal, while Ikeja and Sagamu segments manufacture Noodles and Pasta respectively.

The sales agreement between Honeywell Flour Mills and Flour Mills of Nigeria (FMN) brought production activities at Ikeja factory to a halt in July 2022 and subsequently led to noodles contract milling at FMN Iganmu Plant.

Operating costs that contributed to the flour processing company’s N8.91billion loss before tax in 2023 include the cost of sales, operating expenses and finance cost.

From the audited result and accounts, Honeywell Flour Mills reported N137.82 billion cost of sales in 2023, representing an increase of 10.38per cent from N124.86 billion reported in 2022.

Cost of sales

Cost of sales in Apapa stood at N106.79 billion in 2023 from N99.56 billion in 2022 as Ikeja and Sagamu segments accounted for N5.02 billion and N26.02billion cost of sales in 2023 from N6.99billion and N18.31billion in 2022, respectively.

The growth in cost of sales was driven by N123.99billion raw and packaging materials consumed in 2023 from N111.44billiion reported in 2022. This alone contributed about 89.97       per cent of the company’s cost of sales in the year under review from N89.25 per cent in corresponding year.

The increase in cost of sales dragged gross profit to N9.53billion in 2023 from N11.57billion in 2022.

Non-core business transaction increased to N1.64billion in 2023 from N338.82million in 2022, driven by N1.29billiion government grant and N321.5miilliion net gain on sales of property in 2023 from N44.77million reported in 2022.

Honeywell Flour Mills declared N10.22billion total operating expenses in 2023 from N7.22billion in 2022. 

The breakdown revealed that selling and distribution expenses dropped to N2.2billiion in 2023 from N4.54billiion in 2022, while administrative expenses increased to N8.02billion in 2023 from N2.69billion reported in 2022.

In the period under review, Honeywell Flour Mills declared N10.06biillion finance cost, representing an increase of 83.4 per cent from N5.49billion in 2022.

Honeywell Flour Mills, however, announced N9.16billlion tax income in 2023 from N9.58billion tax expenses to eventually declared N256.1million profit in 2023 from N9.76billion in 2022.

Increasing trade, other payables

Honeywell Flour Mills reported N44.84billion trade and other payables in 2023 from N26.89billion in 2022, contributing about 49.73per cent of the N90.17billiion current liabilities in the year under review.

The company had reported N26.89billion trade and other payables in 2022 full financial year when its current liabilities stood at N68.22billion. Long-term borrowing stood at N33.86billion in 2023 from N21.32billion in 2022 as short-term borrowing moved from N40.51billion in 2022 to oN42.57billion in 2023.

In all, total liabilities of Honeywell Flour Mills closed 2023 at N132.02biillion from N103.22billion in 2022.

The company declared N85.9billion non-current assets in 2023 from N97.25billion, while current assets stood at N79.09billiion in 2023 from N51.45billion in 2022. 

It closed 2023 with N165billion total assets, representing an increase of 10.96 per cent from N148.7billion in 2022.

Trends in Q2 2023 performance

The consumer goods company operating in Nigerian food products, sustained a loss in the second quarter ended September 30, 2023 as the company faced a lower sales volume and a higher finance cost.

It showed that the company posted a loss of N3.98 billion in the review quarter, representing a 44 per cent drop from N7.15 billion loss before tax recorded in the corresponding period of 2022.

It also announced N4.38billion loss in Q2 2023 from N7.35billiion reported in Q2 2022. 

The company’s revenue, that is, total sales figure, thus, grew by four per cent to N79.44 billion from N76.5billion, despite recording a significant decline in its cost of sales.

The company’s cost of sales dropped to N66.47 billion from N72.87 billion, improving its gross profit to N12.98 billion from N3.63billion reported in Q2 2022.

However, company’s finance cost increased to N6.54 billion from N3.69billion in Q2 2022 and ultimately brought its bottom-line performance to a N3.98billion loss for the period.

The fast-moving consumer goods (FMCGs) companies are faced with higher finance costs arising from the companies’ inability to hedge against huge revaluation losses caused by the floating of the naira.

The company had, since November 2015, battled Ecobank over the freezing of its accounts and the demand by the bank to wind up its operations over-indebtedness.

But in 2018, the Supreme Court upheld the Court of Appeal ruling after the apex court was approached by Ecobank to overturn the decision to return full access to Honeywell Flour Mills.

Based on the apex court determination that the ex-parte orders obtained by the bank were improper, Honeywell flour mills, therefore, sought damages at the Federal High Court (FHC)

IIn a notice of April 29, 2022, Flour mills of Nigeria announced its acquisition of a 71.69 per cent stake in Honeywell Flour Mills, formerly a portfolio company of Honeywell Group, and a 5.06 per cent stake in the company held by First bank of Nigeria Limited, stating that the transaction was consummated by the parties.