Honeywell Flour Mills Plc – High Finance Costs Depress Earnings

Must Read

Shop now, pay later with www.zerofinance.com.ng

Zerofinance is Nigeria’s leading online retail store, providing quality branded home electronics, domestic appliances, computers, mobile phones and household...

Top 10 Most Expensive Universities In Nigeria

For many Nigerians, high-quality higher education is a luxury. There are many private universities who are known not only...

List of Mobile Phone USSD Codes for Money Transfers for All Banks in Nigeria

As technology evolves, the financial sector is not left behind, Several softwares have been developed to make banking easier...
Honeywell Flour Mills Plc - High Finance Costs Depress EarningsHoneywell Flour Mills Plc - High Finance Costs Depress Earnings

Expected Border Closure Gains Dematerialises

In its recently released 9M’20 result, Honeywell Flour Mills Plc (‘The Group” or “Honeywell”) grew revenue by 6% year-on-year from N55.08bn in 9M’19 to N58.23bn in 9M’20. As of 6M’20, revenue growth was 9%. The decline in revenue growth rate between 6M’20 and 9M’20 resulted from flat revenue growth in Q3’20. In Q3’20, revenue was flat at N18.78bn (Q3’19: N18.85bn). The revenue performance in Q3’20 was below expectations, as the border closure policy was expected to positively impact sales growth for the Group. Compared to Flour Mills of Nigeria Plc who grew its topline by 17% in the same period, it appeared that the Group did not take advantage of the upside from the border closure. In our view, the Group’s revenue performance in Q3’20 possibly suggests a declining market share amid major competitors like Flours Mills of Nigeria Plc and Olam International.

High Cost Margins Reflect High Operating Leverage

Relative to the previous period, cost margin declined by 100 basis points to 82% in 9M’20 (83% in 9M’20) despite a 5% increase in the cost of sales to N10.24bn from N9.44bn in 9M’19. The lower cost margin despite an increase in the cost of sales was due to higher revenue growth of 9%. Although we note that the cost margin of the Group remains below that of the market leader (Flour Mills of Nigeria at 88%), we believe that the industry is characterised with high-cost margins owing to the impact of high operating leverage. High operating leverage only becomes beneficial when sales accelerate. However, the relatively poor sales in the industry due to shrinking consumer’s purchasing power has resulted in pressured margins. Typically, high operating leverage increases risk and does not create enough flexibility which affects the bottom line. Gross profit, however, grew by 9% year-on-year to N10.24bn in 9M’20 from N9.43bn in 9M’19.

Read:  Honeywell Flour Mills posts N53.27bn revenue
- Advertisement -
Read:  Honeywell Cook-Off Competition Excites Foodies Online (PHOTOS)

Higher Operating Expenses in Q3’20 Erode Prior Cost Savings

Operating expense increased by 3% year-on-year to N6.96bn in 9M’20. A 19% spike in operating expenses to N2.65bn in Q3’20 from N2.42bn in Q3’19, eroded the cost savings as at 6M’20. As of 6M’20, operating expenses had declined by 5%, a move we posit to result from internal efficiency drive amid the harsh operating environment. Nonetheless, operating profit rose by 19% year-on-year to N3.37bn in 9M’20 from N2.82bn in 9M’19.

Honeywell Flour Mills Plc - High Finance Costs Depress Earnings

High Finance Costs Drive Earnings to Negative Territory

- Advertisement -

Finance costs rose by 60% year-on-year to N5.25bn in 9M’20 from N2.65bn in 9M’19, despite a 1% decline in total borrowings from N53.44bn in 9M’19 to N53.03bn in 9M’20. From our analysis, we realised that in 6M’20, owing to an N8.57bn working capital deficit relative to an N3.01bn operating cash flow made, the Group resorted to an N6.07bn borrowings. The implication was an increase in finance costs by 110% as of 6M’20. However, in Q3’20, payments to suppliers were delayed, thus, enabled the Group to use the cash generated to repay a part of its existing debt. The higher finance costs incurred in Q3’20 (especially on a quarter-on-quarter basis) suggests that debt repayment was probably done towards the end of Q3’20.

Read:  MTN, Dangote Sugar Shares Grows Stock Market As Investors Profit N15 Billion

Consequently, profit before tax declined to the negative territory. Profit before tax declined by 608% to a loss of N878mn in 9M’20, from a profit of N173mn in 9M’19. Profit after tax also declined by 747% to a loss of N925.00mn (9M’19: profit of N143.00mn).

Honeywell Flour Mills Plc - High Finance Costs Depress Earnings

- Advertisement -

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

Latest News

Vingroup Starts to Produce Ventilators and Body Thermometers

HANOI, VIETNAM - Media OutReach - 4 April 2020 - In response to the call of the General Secretary, the President, the...

Jumia Takes More Actions to Support the Fight Against COVID-19

Africa’s leading e-commerce platform, Jumia, has announced a number of actions to support the fight against the COVID-19 pandemic. “The last few weeks have been...

Ondo Govt Closes All Borders Over Coronavirus

Having observed the trend in respect of COVID-19 and the pos­sibility of its unde­terminable spread, the Government of Ondo State has ordered the closure...

Federal Government Moves to Salvage Economy but Needs to Consider Restructuring

In the just concluded week, President Muhammadu Buhari, on Thursday, met with the Presidential Committee on the Impact of the Coronavirus on Nigeria’s Economy...

Local Equities Market Plunges by 3.51% as Bonny Light Crashes to USD21.41

In the just concluded week, amid further drop in crude oil prices, especially Bonny Light which fell to USD21.41 per barrel on Thursday, April...
- Advertisement -
BrandsPur Weekly Cartoons
%d bloggers like this: