Flour Mills of Nigeria Plc - Notes from 9M 2017 Conference Call


Tuesday, February 21, 2017 11:05 AM /ARM Research

Last Friday, the management of ,FLOURMILL, (FMN) hosted a conference call to discuss its 9M 2017 financial result as well as outlook over the rest of the financial year. Please find below key discussion points from the presentation.

Top-line Performance
Despite the macroeconomic challenges, 9M 17 revenue rose 48% YoY largely reflecting impact of price increases (+30-40% YoY on average across product lines) as the company attempts to pass-through effect of higher input cost to consumers.

On volumes, the company recorded sizable growth in its fertilizer business (in the agro-allied division) where volumes jumped 30% YoY while modest volume growth (single digit) was recorded across other product lines.

Figure 1: YoY revenue growth across businesses over 9M 17

Source: Company’s financials, ARM Research

The CFO attributed higher COGS (+43% YoY) to impact of naira weakness on raw materials as well higher energy expenses stemming from increased utilization diesel as gas supply challenges lingered during the review period. Elsewhere, salary negotiations with labour unions largely underpinned the 24% YoY rise in admin expenses.

FX challenges
The company sources FX from a variety of markets (interbank, parallel, as well as CBN and commercial forward markets) with the blended value used in translating its FCY position. Mr. Vauthier, FMN’s CFO, noted that the bulk of the FX loss stemmed from trade payables even as the company revalued a $20 million loan (4.2% of total borrowings) for its real estate business over the period.

The CFO attributed the jump in borrowings (+41% YoY to N233 billion) to financing higher cost of imports. Particularly, he noted that pre-payment and deposits for imports (letter of credit) and forward contracts amounted to N49.7 billion over 9M 17 vs. N9 billion in the previous year. He however noted that the company’s net borrowings only rose a modest 18% YoY to N169.1 billion..

Management expects top-line growth to remain buoyed by higher prices and modest volume growth. The foregoing combined with continued cost curbing measure should bolster earnings. On mitigating FX challenges, the CFO averred that the company plans to increase exports in a bid to finance 10% of its FX needs.

Our View

We remain positive on FMN with current price of N17.98 at a 38% discount to our FVE of N24.73.

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