Macroeconomic strains, characterized by a weak naira, fall in oil prices, huge energy costs and continued pressure on consumer wallets has combined to hit Flour Mills Nigeria Plc as the company’s net income fell by 38.78 percent.
Profit was N283.46 million in June 2015 compared with N462 million last year.
Earnings per share EPS fell by 38.76 percent to 3.57k in the period under review as against 5.83k the previous year.
Analysts say policy makers’ decisions to devalue the currency in November 2014 affect inflation and the cost of imports.
This currency depreciation has wiped off the gains on wheat at the international markets aside from its impact on production costs of Nigeria millers. These firms source over 55 percent of their raw materials from abroad.
The naira has dropped 7.8 percent against the dollar on the interbank market this year and has been trading in a range of 197 to 199.75 per dollar since the end of March. It was at 198.25 as of 2:30 p.m. on Monday in Lagos.
Nigerian consumer inflation was at 9.2 percent year-on-year in July unchanged from the previous month, which marked the highest rate since February 2013 and above the central bank’s target upper limit, according the statistics office.
These headwinds puts Honeywell Flour mills in a precarious situation as cost of sales margin was as high as 81.93 percent which means production costs has wipe off most of revenues leaving the miller low profit margin of 2.21 percent.
The company is also having logistics problems as a result of grid lock at its Apapa office, a situation that culminated increased operating expenses by 10.12 percent to N1.72 billion in the period under review from N1.56 billion last year.
The company’s sales fell by 3.03 percent to N12.79 billion in June 2015 compared with N13.19 billion the previous year. Gross profit reduced by 2.66 percent to N2.31 billion in June 2015 compared with N2.25 billion last year.
Analysts say the tempered top-line growth could be attributed to the recent pressure in the macro economy which has subsequently affected consumption spending.
Despite the slow growth in economic activities, Nigeria’s population of 180 million population that crave for consumption means there opportunities for Honeywell to boost sales, soar profit that will increase the returns on share holder’s investment.
The company’s total assets were flattish at N67 billion while shareholder’s fund was also flattish at N20 billion. Honeywell Flour Mills share price closed at N2.49 on the floor of the exchange while market capitalization as stood N19.74 billion.
BALA AUGIE
