Flour Mills Plc: Better, but only slightly
By Folakemi Emem-Akpan
Introduction
For the 2023 financial year, the financial performance of Flour Mills Plc was better than that of 2022. The company was able to step up the level of its income generation, also recording growth in the profit position.
Profit margin, return on assets, return on equity, and pre-tax profitability per employee, and other ratios were better than those of most of its competitors for the same financial year. However, the company’s profitability margins were not so much better than what it recorded in the previous year. This is perhaps attributable to the increasingly harsh economic operating environment for Nigerian companies.
Growth indices
Flour Mills saw a 32.3 percent growth rate in its gross earnings for its 2023 FY. It is important to note that this is the second year in a row that the company will record turnover in excess of one trillion. Such turnover rose to an all-time high of N1.53 trillion, up from N1.16 trillion in the preceding year. This growth rate was lower than the 50.8 percent growth rate achieved in the erstwhile year. Despite the commendable growth in earnings, pre-tax profit growth rate was much lower. Recording a pretax growth rate of 1.5 percent, pre-tax profit was N39.78 million, just a tad higher than the N39.21 million recorded in 2022. Profit after tax obligations also grew slowly over the preceding year’s (5.3 percent).
Total assets deployed by the company for the 2023 year grew to N1.08 trillion, 61.8 percent more than the N667 billion assets deployed in 2022, while shareholders’ funds grew to N225.2 billion. These growths in total assets and equity are as compared to lower growth rates in the erstwhile year.
Profitability ratios
The 2023 financial year remained a profitable one for Flour Mills, but the profitability ratios recorded were lower than those of 2022. First, the profit margin was 2.6 percent in 2023, down from 3.4 percent in 2022 and 4.8 per cent in 2021. What this means is that only N2.60 out of every N100 earned by the company in the course of the year translated to profit (compared to N3.40 and N4.80 in 2022 and 2021 respectively).
Also to record a regression was return on assets (ROA). ROA was 3.7 percent in 2023, down from 5.9 percent in 2022 and 6.8 percent in 2021.
For the 2023 financial year, Flour Mills deployed equity valued at N225.2 billion and for every N100 equity deployed, the company made an after-tax profit of N13.10, a great outcome, but lower than an after-tax profit of N14.30 in the preceding year.
It is worthy of note that Flour Mills spent about the same proportion of total revenue on operating expenses in 2023 as it did in 2022 (3.7 percent in 2023 and 3.6 percent in 2022).
Staff matters
The company did not do badly regarding its employees for the year ended December 31 2023. Pre-tax profit per employee stood at N7.55 million on the average. This is as compared to the N7.38 million employees contributed on the average to the company’s pre-tax profit in 2022 and the N6.72 million they did in 2021.
On the other hand, the company spent more on its employees in 2023. Average staff cost rose to N9.17 million from N7.62 million within the course of 12 months. This means that there was a N1.55 million addition to what an employee earned (on the average) between 2023 and 2022.
Despite the fact that it upped its staff costs, Flour Mills did not incur a higher proportion of staff costs as a proportion of income earned. Staff costs as a portion of turnover was 3.5 percent in 2023, an infinitesimal rise from the 3.4 per cent recorded in 2022.
Other ratios
At a high 1.2 times, Flour Mills current ratio competed favourably against the industry average for 2023. What this means is that for every N1.00 of short-term obligations, the company had N1.20 in short-term assets, and was more than able to meet short term debts from short term assets.
Having a debt-to-equity ratio of 3.9 shows that the company used N3.90 of liabilities in addition to each N1.00 of stockholders’ equity. In other words, the company used N4.90 of total capital for every N1.00 of equity capital.
Flour Mills Vs Honeywell: No comparison
Not only is Flour Mills’ 2023 annual results acceptable in its own stead, but the company’s results also fared competitively in the food/beverages & tobacco sector, and in the narrower confines of the flour milling business. A comparison against Honeywell Flour Mills buttresses this point.
Yes, Flour Mills is easily the bigger of the two companies (in fact, it is the parent company of Honeywell), but a bigger size does not automatically translate into better profitability. For the 2023 review year, Flour Mills was also the leader in terms of performance. Of six profitability ratios examined, Flour Mills led in all.
Turnover growth rate
For the 2023 financial year, Flour Mills had a turnover growth rate of 32.8 per cent, as compared to Honeywell’s turnover growth rate of 8 per cent for the same period under review. Analysis shows that Flour Mills was the winner in this respect.
Pre-tax profit growth rate
For the year, Flour Mills’ profit before tax grew by a mere 1.5 percent. This is much better than the 5 percent Honeywell recorded. However, it is also important to note that while Flour Mills witnessed an actual growth, Honeywell had a pre-tax loss of N8.9 million.
Between turnover and profit
For the 2023 financial year, pre-tax profit margin (which measures a company’s ability to squeeze as much profit as is possible from turnover) for Flour Mills was 2.6 percent, low, but better than Honeywell’s pre-tax loss margin of (6.1) per cent.
Return on equity
Flour Mills led its peers in terms of return on equity (ROE), recording an ROE of 13.1 percent. This 13.1 percent ROE is as compared to Honeywell’s ROE for 2023 which stood at 0.78 percent.
Analysis shows that while every N100 worth of equity deployed by Flour Mills earned it N13.10 in after-tax profit, such N100 equity deployed earned Honeywell a mere 80 kobo as after-tax profit.
Return on assets
ROA for Flour Mills was 3.7 percent, down from 5.9 percent in the prior year. This means that of every N100 worth of assets deployed by Flour Mills, N3.70 accrued to it as pre-tax profit while Honeywell recorded a N5.40 pre-tax loss from every N100 worth of assets employed.
Pre-tax profit per employee
For the 2023 financial year, Flour Mills recorded a pre-tax profit per employee of N6.72 million, much better than Honeywell’s N10.9 million pre-tax loss per employee.
Conclusion
One good thing about Flour Mills is that it has consistently paid its shareholders dividends. As it continues to grapple with the harsh realities of the Nigerian operating environment, it is doing its best to continue to maintain a positive bottom-line and to keep its shareholders happy.
