High Forex Losses, Finance Costs Debase Profit Growth

February 06, (THEWILL) – From a distance, the interim nine-month results of Flour Mills of Nigeria Plc for the period ended December 31, 2021 point to an impressive growth in its up-line and bottom-line performance. Combined revenue of the three quarters soared by 48.5 per cent to N824.98 billion compared to N555.34 billion in the preceding period. Profit after tax (PAT) grew by 9.5 percent to N17.05 billion from N15.58 billion in the corresponding year.

However, the major fast-moving consumer goods firm is hemorrhaging in foreign exchange losses and finance costs, which have remained significantly high since the 2020 corresponding period. While the high foreign exchange losses impact adversely on the ‘Net Operating Gains and Losses’ result, the high finance cost trims the firm’s profitability. Effectively, the two areas of negative performance could debase the revenue and profitability growth of a manufacturing enterprise in Nigeria’s hostile operating environment.

Flour Mills of Nigeria posted N11.62 billion in foreign exchange losses for the reporting period, which is an improvement on the N14.55 billion recorded in the nine months period of 2020 – the peak after the N2 billion of 2017. The figures for 2018 and 2019 were N810 million and N560 million respectively.

Additionally, high finance costs seem not to be abating: The figures rose from N14 billion in the preceding period of 2020 to hit N16.12 billion, an upward jump of 8 percent.  The northward trajectory in the company’s finance costs saw it pay N25.15 billion in the nine months of 2017, but recorded a 34.2 percent drop in 2018 and 2019 when it posted N16.55 billion in the two years respectively.

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The nation’s foremost integrated food and agro-allied company recorded a remarkable revenue haul of N824.98 billion during the reporting period. This is the peak in five-years from 2017 when it posted a revenue performance of N427.5 billion. The figure dropped to N400.64 billion and N423.48 billion in nine months of 2018 and 2019 respectively. Consequently, the firm grew its revenue by 93 percent in five years; moreover, after the surgical recovery from the 2020 COVID-19 pandemic.

Some analysts point to what they consider deep inefficiency in the operations of Flour Mills of Nigeria, which is traced to a firm that appears ‘incredibly incapable of delivering better margins’.

“These are impressive top-line numbers by any stretch of measurement especially in a country where the purchasing power of its citizens is dwindling due to rising inflation. However, when you decide to go below top-line revenues, the story is different. You see a company that is efficient and being inefficient,” analysts at Nairametrics, said.

Flour Mills of Nigeria is among the 20 listed major Fast Moving Consumer Goods (FMCG) firms on the Nigerian Exchange, which recorded significantly impressive performance…