July 1, 2021/Cordros Report
FLOURMILL published its 2021FY audited financials after the market’s close (29th June). The result showed that Profit after tax grew remarkably by 126.0% y/y to NGN25.72 billion – the highest on record. The strong performance was underpinned by the solid topline growth (+34.5% y/y) and a surge in investment income (+52.6% y/y). Consequently, the company recorded an EPS of NGN3.55 (2020FY: NGN2.55). The board has proposed a final dividend of NGN1.65/s (2020FY: NGN1.40/s), translating to a dividend yield of 5.6% based on the last closing price of NGN29.60.
Revenue grew by 34.5% y/y to NGN771.61 billion, driven by substantial growth across the company’s food (+33.5% y/y), agro-allied (+32.2% y/y) and sugar (+27.7% y/y) business segments. Similarly, revenue from support services surged by 136.9% y/y – the highest in at least ten 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.
Gross margin increased by 207bps to 13.8% y/y in 2021FY, as topline growth (+34.5% y/y) outpaced the increase in the cost of sales (+30.9% y/y). 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% y/y to NGN106.76 billion while EBITDA advanced by 33.9% y/y to NGN74.54 billion in 2021FY. However, the EBITDA margin pared by 5bps to 9.7% y/y (2020FY: 9.7% y/y) due to the growth in OPEX (+26.1% y/y) as selling & distribution expenses and administrative expenses increased by 30.2% y/y and 24.4% y/y respectively.
We note that the company also recorded a net operating loss of NGN15.53 billion in 2021FY compared to a net operating gain of NGN4.91 billion in 2020FY, limiting the trickle-down impact of the strong revenue growth. We imagine that the loss was driven by the impact of currency devaluation on foreign currency payables.
FLOURMILL’s earnings were further boosted by moderation in finance costs (-6.6% y/y) following a reduction in interest on bank loans from NGN15.18 billion in 2020FY to 9.89 billion in 2021FY. In addition, we highlight that the NGN30.00 billion bond issued by the company moderated additional borrowings during the period. Accordingly, Net finance cost declined by 14.7% y/y, further supported by a 52.6% y/y surge in investment income.
Overall, Profit before tax increased by 112.6% y/y to NGN37.19 billion (2020FY: NGN17.50 billion), while Profit after tax rose by 126.0% y/y despite an 87.5% y/y increase in tax expense.
Comment: 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. Our estimates are under review.