FMN: Improving on shareholders’ return amid challenging environment
By Kayode Tokede
Flour Mills of Nigeria (FMN) Plc maintained its impressive performance amid severe challenges as recorded in its first quarter (Q1) ended June 31, 2021 unaudited results as the management improve on shareholders’ return.
The latest results by FMN showed impressive performance across financial parameters to signpost improved dividend payout to shareholders in 2022 financial and share price appreciation.
The management had pledged to carry on with its long-term investment strategy in product development and route-to-market initiatives, with a strong emphasis on Backward Integration across all value chains.
Understudying the country’s leading integrated foods and agro-allied Q1 2021 showed that the Group reported 12 per cent increase in Profit Before Tax to N7.3 billion in Q1 2021, compared to N6.5 billion in Q1 2020, while Profit After Tax rose by 10 per cent to N5.4 billion in Q1 2021, compared to N5 billion in Q1 2020.
Volume and revenue continued to appreciate despite increases in international food prices and input costs during the review period.
The owners of the iconic food brand – ‘Golden Penny,’ announced an average revenue increase of 51 per cent in its Q1 2021, driven by continuous improvement in the food category.
The Group’s revenue was N233.7 billion in Q1 2021, compared to N154.6 billion in Q1 2020, while the company’s Q1 2021 closed at N149.9billion from N98.7billion in 2020.
The impressive performance was recorded across all business segments underpinned by sustained demand in Agro-allied, particularly in Edible Oils and Fertilizer businesses, and continued improvements in the Food segment.
A check revealed that revenue generated from Food rose by 61.4 per cent to N146.93billion in Q1 2021 from N91.03billion reported in Q1 2020, while revenue from Agro Allied closed Q1 2021 at N33.53billion, 44.1 per cent increase from N33.09billion in Q1 2020.
In addition, revenue from Sugar rose by 24 per cent to N33.53billion from N27.04billion in Q1 20200 while revenue from “Support Services” grew significantly by 63.3 per cent to N5.56billion in Q1 2021 from N3.41billion in Q1 2020.
The Q1 2021 is coming on the heels of improved year-over-year growth earnings in its food division’s Edible oils and Fertilizers business, as well as a solid operational drive in its B2C segment.
FMN audited financial for the year ended March 31, 2021, showcased improvement in organic sales growth and profitability.
For last year, the group revenue rose by 34 per cent to N771.61billion as against N573.77billion reported in prior year audited result and accounts.
Revenue from customers domiciled in Nigeria amounted to N753.8 billion (2020: N569.4 billion), while revenue from foreign customers (export revenue) amounted to N17.2 billion (2020: N4.3 billion).
The Group delivered impressive financial year top-line growth across all business segments with an average revenue growth of 34per cent, led by growth in Agro-allied, among others.
Revenue generated from Food segment in 2021 was N478.33billion as against N358.35billion reported in 2020. Agro allied’s revenue also grew by 33per cent to N139.44billion in 2021 from N105.46billion in 2020.
The growth in Food business was driven by constant product innovation and transformation in new markets, as well as operational efficiency through route-to-market investments and rapid expansion in the B2C sectors
Further breakdown of the Group’s revealed that revenue from Sugar rose by 27 per cent to N124.6billion in 2021 from N97.63billion reported in 2020, while Support Services rose significantly by nearly 137 per cent to N29.2billion in 2021 from N12.3billion in 2020.
The impressive performance in 2021 financial year was as a result of resilience in a challenging year to capture first signs of economic recovery with accelerated fourth quarter (Q4) growth as against last year (Q4’21 vs Q4’20: Revenue +44 per cent).
Cost of sales rose by 31 per cent to N664.85billion in 2021 from N507.99billion reported in 2020 to position FMN’s Gross profit at N106.76billion, an increase of 62.3 per cent from N65.8billion reported in 2020.
Operating expenses closed 2021 at N41.13billion, about 26 per cent increase when compared to N32.6billion reported in 2020, specifically driven by Selling and distribution expenses that gained 30 per cent to N12.08billion in 2021 from N9.28billion in 2020.
Administrative expenses also rose by 24.4 per cent to N29.05billion in 2021 from N23.35billion in 2020.
The modest performance in total operating expenses dragged the Group operating profit to N52.2billion, an increase of 49 per cent when compared to N35.08billion in 2020.
Interest income from short term investments and bank deposits rose by 53 per cent to N3.65billion in 2021 as against N2.39billion in 2020.
Amid the effective management of its finance, last year finance cost dropped by about seven per cent to N18.6billion as against N19.98billion in 2020.
About 34.86per cent drop in Interest on bank loans and overdrafts to N9.89billion in 2021 from N15.18billion in 2020 contributed to the decline in finance cost last year.
With significant increase in revenue and effective management of expenses, FMN’s profit before tax rose significantly by 116 per cent to N37.28billion in 2021 from N17.25billion in 2020.
Profit after tax also rose by N25.72billion in 2021, an increase of 126 per cent from N11.4billion in 2020. The growth in profits, positioned Basic earnings per share at N6.38 in 2021 from N2.55 in 2020.
The company has consistently maintained leadership focused on strong discipline in operational and capital efficiency by increasing local content in group-wide supply chains and supporting backward integration programs across all value chains.
Based on the performance, the board has proposed a dividend of 165 kobo per share up from 140 kobo per share last year, underlining its consistency as one of the most reliable companies when it comes to consistency in dividend payment.
This attribute has also over the years made the company an investor’s delight.
Balance sheet on impressive position
The growth in profit & loss figures couldn’t have been achieved without a robust balance sheet to operate with. In 2021 financial year, FMN’s total assets rose by 26 per cent to N544.73billion from N432.45billion in 2020.
FMN’s total non-current assets dropped by 1.6 per cent to N238.7billion from N242.72billion in 2020 while Total current assets rose by 61.3 per cent to N306billion from N189.7billion in 2020.
The group’s total equity gained 12.07 per cent to N174.6billion in 2021 from N155.81billion in 2020.
Furthermore, the group’s total liabilities rose by 33.8 per cent to N370.12billion from N276.65bilion in 2020 with total current liabilities contributing 57 per cent.
However, total current liabilities rose by 41 per cent to N209.7billion in 2021 from N148.8billion in 2020 while Total non-current liabilities gained 25 per cent to N160.4billion in 2021 as against N127.89billion in 2020.
In the reporting period, FMN successfully issued N30billion corporate bond with tenor of 5 and 7 years at 5.50% and 6.25per cent respectively as part of its ongoing program to replace expensive short-term facilities.
The Group ultimately remained focused on operational efficiency throughout the previous financial year, with accelerated plans for cost optimization across the organization to ensure competitive product offers and profitability in the changing operating environment.
Operational excellence of the company
In 2021 financial year, less than ideal macroeconomic conditions caused consumer disposable income and confidence to weaken, posing additional challenges to Fast-Moving Consumer Goods (FMCGs).
Severe infrastructure gaps, high interest rates and diminishing disposable income continued to constitute a difficult operating environment for FMN and most FMCGs, indeed.
These challenges were partially offset by improved economies of scale, enhanced route to market capabilities and the successful launch of new products designed to cater for the needs of specific demographics or regions.
The FMN Group recorded organic growth as a result of continuing product innovation and market transformation, as well as enhanced operational efficiencies. New product options, including Amazing Day, Auntie B Spaghetti Slim, Spaghetti, as well as new SKUs were introduced to the market to further strengthen Golden Penny’s brand presence in target markets.
The Group also made significant progress in the year under review with a robust Route to Consumer strategy. As expected, this has stimulated both volume and distribution growth in the core categories of Pasta, Ball Food, and Noodles, as well as for the development of new categories such as oils and fats and consumer sugar.
Since the incorporation, the company has remained Nigeria’s largest and oldest integrated agro-allied business with a broad profile and robust pan-Africa distribution network.
The company’s subsidiary, Golden Sugar also increased its investment in sugar self-sufficiency and was recently Awarded ISO 50001 For Energy Management. Golden Sugar Company, the most productive in the Federal Government’s backward integration on sugar, was awarded the ISO 50001 Energy management systems certification by the International Organization for Standardization (ISO). This will lead to further cost-cutting efficiency in sugar production.
Companies that adopt ISO 50001 do not only yield benefits from the energy savings but, also showcase environmental responsibility to corporate customers in line with the UN sustainability goals.
The Group also assisted its distributors in expanding their business through training and seminars, negotiating favorable financing terms with funding partners, and more.
Within the Agro-allied space, FMN Group maintained its focus on local content by increasing backward integration investments and strategic collaborations across all value chains.
To facilitate the aggregation of raw materials from a network of smallholder farmers and young entrepreneurs, FMN continued to invest in their capacities by providing enabling structures such as training and related extension services.
While expansion of blending facilities and distribution hubs, as well as geographic expansion into Northern and Eastern markets, provide support to the Group’s Fertilizer business’s growth strategy.
