FMN Reaps Benefits of Innovation
Flour Mills of Nigeria Plc combined products innovation, cost optimisation and backward integration to deliver improved results in the year ended March 31, 2021, despite headwinds in the economy, writes Goddy Egene
Operating business in the Nigerian environment was very tough in 2020 following the spread of COVID-19 pandemic to Nigeria. Apart from the usual headwinds such as poor infrastructure, high cost of raw materials, and the rising inflation, many companies had to contend with the challenges brought by COVID-19 pandemic.
The economy witnessed a lockdown for months, a development that affected the operations of companies.
Therefore, there were apprehensions among stakeholders that considering the impact of the pandemic, companies would performance poorly and reward shareholders with lower dividends. However, some companies have shown resilience going by their interim results.
Flour Mills of Nigeria Plc (FMN), which financial year runs from April 2020, to March 2021, is among the companies that have overcome the headwinds to declare improved financial results and rewarding shareholders with high dividend.
Riding on the back of product innovation, agro-allied turnaround strategy, cost optimisation and renewed focus on backward integration programmes, FMN delivered growths in both the top and bottom-lines.
The audited results for the year ended March 31, 2021, showed an innovation-driven revenue performance underlined by an accelerated four quarter growth against the same period of preceding year. The performance also indicated that the group achieved impressive top-line growth for the year, aided by gains from its agro-allied turnaround strategy.
A breakdown of the results showed that FMN posted a revenue of N771.6 billion for the year, 34.5 per cent growth compared with N573.77 billion recorded the previous year. Net finance cost fell from N17.5 billion to N15 billion, resulting from better cost and financial management strategy. Profit before tax rose by 112 per cent to N37.19 billion from N17.50 billion, while profit after tax (PAT) grew faster by 126 per cent to print at N25.72 billion compared with N11.38 billion the preceding year.
The efficiency of the company was reflected in the profit before tax (PBT) margin, which improved from 3.0 per cent to 4.8 per cent, while profit after tax (PAT) similarly rose from two per cent to 3.3 per cent.
Based on the improved results, the board has proposed a dividend of 165 kobo per share up from 140 kobo per share last year.
Commenting on the results, the Group Managing Director, Mr. Omoboyede Olusanya said: “FMN emerges from the prevailing COVID-19 environment as a stronger, more resilient, flexible, and confident business as a result of the collective strategic actions made over our 60-year history.
“I want to thank all our employees for their patience and hard work as we consistently adapted to the year’s challenges and invested significantly in our purpose of feeding the nation every day.”
FMN successfully issued N30 billion in corporate notes with tenors of 5 and 7 years at 5.50 per cent and 6.25 per cent, respectively, to strategically replace costly short-term facilities.
Championing backward integration programmes also enabled the company to expand value delivery across all value chains, including strategic partnerships with smallholder farmers, which drove an average revenue gain of 34 per cent across all business sectors.
Also, the company said its food business also recorded exponential organic growth, driven by constant product innovation and transformation in new markets, as well as operational efficiency through route-to-market investments in digitalisation and rapid expansion in the business to consumer (B2C) sectors.
The leadership of the company has pledged to maintain a consistent focus on strong discipline in operational and capital efficiency by increasing local content in group-wide supply chains and sustain its commitment to backward integration programs across all value chains.
According to the company, the year under review marked a strategically improved market/brand awareness of the Group’s range
of affordable and high nutrition-based food products; an acceleration in B2C segments with the introduction of new product offerings such as Auntie B Spaghetti Slim and Spaghetti, as well as the introduction of new stock-keeping units (SKUs) in key categories, along with investments in regional distribution.
“The leadership vision and brand pillar is improving operational and capital efficiency. The group’s food product portfolio is good for the nation and excellent for business; the group’s increased its focus on local content in group-wide supply chains and investments in backward integration as part of its long term strategy to contribute to economic growth,” the company said.
FMN added that in one of the most challenging years in recent history, the group activated a comprehensive response and mobilised considerable resources including a resilient global supply-chain to help the federal government manage the impact of the COVID-19 pandemic on the nation.
“These include: expanding Nigeria’s testing capacity with 60,000 COVID-19 test kits; supporting 10,000 Nigerian healthcare workers in 15 states with $1.5 million medical supplies procurement.
“Supporting vulnerable communities in 12 states with a N400 million food donation programme and contributing an additional N1 billion to the Central Bank of Nigeria (CBN) -led Nigerian private sector coalition against COVID-19,” the company said.
FMN said it was also supporting local wheat development with a strategic partnership with Flour Milling Association of Nigeria (FMAN). The group has aggregated over 800 tons of wheat across three states, and has provided 493 farmers with mechanized harvesting and threshing services.
Equally, in line with the federal government’s commitment to make Nigeria sugar self-sufficient, FMN said that one of its a subsidiaries, Golden Sugar Company, had expanded investments in backward integration to engage more sugarcane outgrowers at its Sunti Sugar Estate.
Sunti Golden Sugar Estate N64billion investment is the largest commitment under the Nigeria Sugar Masterplan Plan (NSMP) and also the first and only Greenfield initiative currently producing raw sugar in the country.
According to the company, the new investment in upland acquisition of 5,200ha in Sunti, brings the total acquired land area for cultivation of sugarcane to 22,000ha and the expected increase in production will subsequently drive the capacity expansion of the Sugar mill – construction of a 15km all-weather heavy-duty link road to the mill has already commenced.
“With this acquisition, total upland development would exceed 10,000ha under cane, which would be mainly cultivated by smallholder farmers engaged by the company, to receive necessary support under the existing outgrower scheme, to guarantee quality of output. Upland cultivation significantly reduces the potential risk of flooding, which could wash away plantations of cane,” FMN said.
Olusanya, noted that FMN was committed to investing a minimum of N160 billion in backward integration including the inauguration of a new Sugar mill at Nasarawa.
He said all countries in their own ways create avenues for sustainable local development of goods and services that they have a certain level of competitive advantage at producing locally.
The GMD said: “We have invested more than N150 billion in backward integration over the past 10 years to support in particular, the core businesses that we are in, our backward integration plan indicates that we are a strong player in the agric sector, one of the key drivers for us is to help develop the local supply chain and reduce dependence on imports.
“We see that as a strong element of business growth for us, and our ability to continue to play significantly well in the sector, whether it’s in sugar, wheat, cassava or in palm-oil. FMN will continue to support the growth and development of local production and manufacturing,” he said.
Assessing the results, analysts at Cordros Securities, stated the strong performance was underpinned by the solid top-line growth (+34.5 per cent) and a surge in investment income (+52.6 per cent).
According to the analysts, revenue grew by 34.5 per cent to N771.61 billion, driven by substantial growth across the company’s food (+33.5 per cent), agro-allied (+32.2 per cent) and sugar (+27.7 per cent) business segments.
“Similarly, revenue from support services surged by 136.9 per cent, – the highest in at least 10 years. Our channel checks revealed that the company’s impressive performance was underpinned by diverse and new product offerings across five value chains – grains, oils & fat, sweeteners, proteins and starches. The solid topline growth was further supported by the new advertisement campaigns, restructuring of the agro-allied business segment and accelerated expansion in the B2C channel,” they added.
Cordros Securities said gross margin increased by 207bps to 13.8 per cent , as top-line growth (+34.5 per cent) outpaced the increase in the cost of sales (+30.9 per cent). The slower growth in sales cost reflects the company’s improved operational efficiencies amidst the challenging business environment. Consequently, gross profit jumped by 62.3 per cent to N106.76 billion while earnings before interest, tax, depreciation and amortization(EBITDA) advanced by 33.9 per cent to N74.54 billion in 2021.”
The company said FMN’s earnings were further boosted by moderation in finance costs (-6.6 per cent) following a reduction in interest on bank loans from N15.18 billion in 2020 to N9.89 billion in 2021FY. In addition, we highlight that the N30.00 billion bond issued by the company moderated additional borrowings during the period. Accordingly, net finance cost declined by 14.7 per cent, further supported by a 52.6 per cent surge in investment income.
“We like that the company maintained broad-based improvements across all business units, reflecting positive results from product innovations, investments in its route to market strategy and operational efficiencies. Similarly, the company completed the restructuring of its agro-allied segment, which in our opinion, will continue to support revenue growth. However, we note that the reopening of land borders, weak macroeconomic fundamentals, and elevated operating cost remains a significant headwind to volume growth and profitability. From a market standpoint, we expect investors to react positively to the company’s solid earnings,” Cordros Securities said.
We like that the company maintained broad-based improvements across all business units, reflecting positive results from product innovations, investments in its route to market strategy and operational efficiencies