Honeywell Flour Mills Plc has returned to the path of profitability, thanks to a significant reduction in cost of production as the company continues to intensify its aggressive backward integration programme
Of all the consumer goods firms under our coverage, only Honeywell has been able to keep costs down amid a weak naira, rising inflation, and high energy costs.
For the year ended 31 March 2017, the company recorded a profit after tax of N4.30 billion from N3.02 billion loss of the previous year.
Sales was up 4.60 percent to N53.22 billion as the company continues to execute aggressive expansion plans with a view to increasing its market share.
The stellar performance was underpinned by 12.91 percent reduction in cost of sales to N40.51 billion, amid a volatile and tough operating environment.
Cost of sales ratio fell to 76.15 percent in the year from 91.46 percent the previous year, which means the Nigerian miller is spending less on input cost for each unit of product.
Analysts attribute the reduction in costs to the company’s ability to innovate, which led it to buy high quality local grains and cassava from farmers as substitutes for wheat, fending off foreign exchange challenges.
“All manufactures are beginning to use alternative to Wheat which is cassava and Maize,” said an analyst who doesn’t want his name mentioned.
“They are into aggressive backward integration programme and Honeywell’s investment in Ogun State may have started yielding fruits,” he added
Honeywell Flour Mills has new multi-billion naira state-of-the-art foods & agro-allied complex in Ogun State which it said will create additional jobs in the economy and reduce the company’s demand for foreign exchange.
Further analysis of Honeywell’s financial statement shows the company’s finance costs spiked by 240.57 to N2.87 billion in the period under review from N819 million the previous.
Analysts are of the view that the increase in financial expenses reflects higher level of debts on money borrowed for capacity expansion in Apapa, Ikamo and Agabara.
The company’s earnings can cover interest expenses as its interest coverage ratio of 2.96 times is higher than the global standard of 1.50 times.
The ratio measures how many times over a company could pay its outstanding debts using its earnings.
An industry expert said that the introduction of 60 percent special window by the central bank late last year was a boon for manufacturers.
Honeywell was able to manage direct costs attributable to projects as gross profit surged by 91.95 percent to N12.71 billion while gross profit margin increased to 23.88 percent in the period under review from 8.58 percent the previous year.
The Nigerian miller’s net margin, a measure of efficiency, increased to 8.71 percent in the period under review as against 5.93 percent the previous year.
The directors of the company have proposed a dividend of N475.81 million, which translates to 6k for each ordinary share.
Honeywell’s share price closed at N1.76 at the NSE on Friday, taking market capitalization to N13.95 billion.
BALA AUGIE
