Honeywell Flour Mills FY2021 Audited Result: Strong Earnings Growth, But Rising Leverage


Wednesday, June 23, 2021 / 2:00 PM / by TheAnalyst, Proshare Research/Header Image Credit: Honeywell Flour Mills


The FY2021 audited result of Honeywell Flour Mills showed improvement both in top and bottom-line earnings. The flour maker's liquidity also improved, despite an increase in the short-term debt of the company. The audited result showed a marginal improvement in the grain miller's activity ratios, however, there were ratios still below analysts preferred industry standards.

Key Takeaways

  • Revenue rose year-on-year by +36.23% from N80.45bn in FY2020 to N109.59bn in FY2021.
  • Profit before tax grew by +24.13% Y-o-Y from N1.27bn in FY2020 to N1.58bn in FY2021.
  • Profit after tax grew significantly by +73.08% from N650.49m in FY2020 to N1.13bn FY2021.
  • Gross profit up Y-o-Y by +12.69%, from N13.86bn in FY2020 to N15.62bn in FY2021.
  • Cost of sales increased by +41.13% from N66.59bn in FY2020 to N93.97bn in FY2021
  • Finance cost up significantly Y-o-Y by +43.57% in FY2020, from N4.23bn in FY2020 to N6.07bn.
  • Selling and distribution expenses dipped marginally by -8.15% Y-o-Y from N6.04bn in FY2020 to N5.54bn in FY2021.
  • Total debt rose slightly by +3.76% in FY2021 from N58.29bn in FY2020 to N60.48bn. Much of the debt was the consequence of a rise in short-term trade finance during the course of the company's ordinary business.
  •  Total assets grew Y-o-Y by +3.61% from N142.26bn in FY2020 to N147.39bn in FY2021.


Share Price Movement-Calm Waters

The year-to-date (YTD) share price movement of the Flour maker has been relatively stable with price spikes seen in February and April 2021. The movement in the share price could be attributed to corporate disclosures from the company and general investor sentiment towards the stock.


The company's share price fell YTD by -6.45% as of June 7th, 2021. Trading in the month of May 2021 shuffled along a neutral channel with no trend towards bullish or bearish market action. Falling traded volume may, however, indicate future market long positions as the company gradually improves is debt-to-equity situation.


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Source: NGX, Proshare Markets



Honeywell Flour Mill's revenue has been on an upward trajectory for the past 5 years. In 2021, revenue grew by +36.23%, from N80.45bn in FY2020 to N109.59bn in FY2021, while gross profit grew by +12.69% Y-o-Y to N15.62bn despite the miller's cost of sales rising by +41.13% during the period (see chart 1 below).


A breakdown of the company's revenue by geographical location showed that the bulk of the company's revenue was generated in the Nigerian market.


Chart 1: Honeywell Flour Mills Revenue 2017 - 2021 (N'bn)

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Source: Honeywell Flour Mills Financial Statement, Proshare Research


Revenue by Operational Slices

The Company's business is spread amongst three factories located at Ikeja, Sagamu, and Apapa. The Apapa factory manufactures the bulk of the company's output, it produces Flour, Semolina and Wheat meals. The Ikeja factory manufactures Noodles while the Sagamu factory produces Pasta.

The Apapa factory contributed 77.58% of the total revenue of the company and its revenue grew Y-o-Y by +31.24% which was slower than the growth in the Sagamu factory which had the highest Y-o-Y growth in revenue amongst the business segment.


The Ikeja factory contributed 5.01% to total revenue and recorded a -13.81% decline in revenue in FY2021. The Sagamu factory saw strong revenue growth of +105.38% and contributed 17.41% to the total revenue of the business (see table 1 below).


Table 1: A Breakdown of Revenue by Segment 

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Source: NGX, Proshare Markets


Profit Before Tax 

The pasta maker's profit before tax (PBT) rose Y-o-Y by +24.13% from N1.27bn in FY2020 to N1.58bn in FY2021, this was supported by a +39.08% rise in operating profit despite a +43.6% climb in finance cost.


In 2019, PBT significantly fell Y-o-Y by -87.53%, but saw a rebound in 2020, although not as high as 2017 levels (see chart 2 below).


For FY2020, profit after tax (PAT) grew faster than profit before tax (PBT), PAT grew Y-o-Y by +73.08%, because of a -27.25% decline in tax and despite a +69.70% increase in Police Trust Fund Levy.


Chart 2: Honeywell Flour Mills Profit Before Tax 2017 - 2021 (N'm)

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Source: Honeywell Flour Mills Financial Statement, Proshare Research


Operating Analysis- Higher Liquidity, But...


Current Ratio

The FY2021 result of the company showed an improvement in its current ratio, from 0.69 in FY2020 to 0.74 in FY2021, although analysts see a current ratio of 2.1 preferrable and indicative of more stable liquidity. The improvement in the company's current ratio was attributable to a +24.52% rise in current assets.


In 2018, Honeywell Flour mills recorded its highest current ratio of 0.77 while the lowest ratio was seen in 2017 (see chart 3 below).


Chart 3: Honeywell Flour Mills Current Ratio 2017 - 2021

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Source: Honeywell Flour Mills Financial Statement, Proshare Research


Acid-Test Ratio 

The company's acid-test ratio (a ratio that adjusts the current ratio for inventories) equally improved in 2021, although only marginally. The miller's acid ratio rose from 0.36 in FY2020 to 0.42 in FY2021. Corporate analysts believe that an acid-test ratio of


1.1 or higher shows a desirable capacity of a company to meet its short-term obligations without its inventories.


In 2018, the company's best liquidity year in recent times, both the current ratio and quick ratio (acid-test ratio) improved which was propelled by the growth in current assets. The company’s current assets grew by +66.09% while current liabilities grew by +7.18% (see chart 4 below).


Chart 4: Honeywell Flour Mills Acid-Test Ratio 2017 - 2021

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Source: Honeywell Flour Mills Financial Statement, Proshare Research


Liquidity Ratio 

The overall liquidity of the Noodles maker improved in FY2021; the liquidity ratio rose to 31.17% in FY2021 as against 25.93% in FY2020.


The company recorded its highest liquidity ratio in FY2021 while its lowest ratio was posted in FY 2017 (see chart 5 below).

Chart 5: Honeywell Flour Mills Liquidity Ratio 2017 - 2021

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Source: Honeywell Flour Mills Financial Statement, Proshare Research


Leverage Ratio

Honeywell Flour Mills' leverage ratio has seen exponential growth in the last five years. FY2021 result showed a debt-to-equity ratio of 104.34% as against 101.98% in FY2020. The total debt of the company grew marginally by +3.76% Y-o-Y while total equity had a slower Y-o-Y growth of +1.41% (see chart 6 below).


A breakdown of total debt showed that the company's current debt rose by +20.36% Y-o-Y while its non-current debt fell by -15.79% Y-o-Y.


Chart 6: Honeywell Flour Mills Leverage Ratio 2017 - 2021

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Source: Honeywell Flour Mills Financial Statement, Proshare Research


A review of the FY2021 financial statement of the company, showed that loans from First Bank of Nigeria Limited comprised 45.98% of the company's total non-current debt, while direct interventions from the CBN and Bank of Industry contributed 0.55% and 10.22% of the miller's loans. Loans from the Real Sector Support Fund (RSSF) under the CBN through Polaris Bank and Fidelity Bank comprised 15.52% and 27.72% respectively.


The company's financial statement noted that all the grain miller's loans were performing (see illustration 1 below).


Illustration 1 A Breakdown of Honeywell Debt

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The Industry and Honeywell: Gazing through the Looking Glass



The movement of revenue growth of the industry total was above Honeywell Flour mills in recent years. However, between 2019 and 2020 we see a reversal of that trend, growth in revenue of the company was above the industry.

In 2020, total revenue of the industry grew Y-o-Y by +5.18% while the revenue of the flour maker had a higher percentage growth of +36.23% (see chart 7 below).


Chart 7: Movement in Industry and Honeywell's Revenue 2016 - 2020 (N)

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Source: NGX, Proshare Research


Honeywell Flour Mill's percentage contribution to industry revenue has been marginal, however, there has been a steady improvement for the past five years. The 2021 audited result of the grain miller shows that its contribution grew from 4.30% in 2020 to 5.57% in 2021. Although there was a decline in its contribution to industry revenue in 2017, this situation saw a reversal in 2018 and has grown steadily since (see chart 8 below).


Chart 8: Honeywell Flourmill's Contribution to Industry Revenue 2016 - Q1 2021

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Source: NGX, Proshare Research


Profit Before Tax 

In contrast to the difference in trends in revenue between Honeywell and its rivals in the consumer goods industry, the company's profit before tax (PBT) growth and the industry average was similar. They both saw steady declines in PBT, but between 2018 and 2020 the PBT of the miller saw a sharp upward reversal while the industry witnessed a decline.


In 2020, Honeywell Flour's PBT grew by +24.13% while the industry average for FCMGs declined by -8.39% Y-o-Y (see chart 9 below).


Chart 9: Movement of Industry Total & Honeywell Flour's PBT 2016 - 2020

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Source: NGX, Proshare Research


The company's earnings contribution saw a similar trend, recording a dip between 2016 and 2018 but settling to a noticeable reversal in 2018. In 2020, earnings before tax contribution to industry total grew from 1.20% in 2019 to 1.63% in 2020 (see chart 10 below).


Chart 10: Honeywell Flourmill's Earnings Contribution to Industry Total 2016 - 2020

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Source: NGX, Proshare Research


Battling A Tide 

Honeywell Flour Mills Plc has had to trudge through a tough period for Nigerian businesses over the past year, especially with COVID-19, challenges with forex, infrastructural issues, and other macroeconomic factors. The company has also had to come to terms with an economy where real disposable income has continued to shrink as inflation (presently at a headline rate of 18.17%) takes a toll on consumer spending.


Looking ahead, the company would need to reduce its vulnerability to operating stocks by either increasing equity (which would reduce investor's equity returns) or continue to force down debt (which would reduce corporate leverage but also reduce equity return). The business currents in 2021 will be tough to swim against but Honeywell Flour Mills has no other choice but to keep growing. On a positive note, there is evidence that the company has been steadily improving on a number of key ratios in the past years.

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