Flour Mills Nigeria Plc,


Eromosele Abiodun writes that the recent diversification drive by Flour Mills of Nigeria Plc means a secure future for its shareholders

Incorporated in September 1960 as a private limited liability company, Flour Mills of Nigeria Plc is one of the largest and most successful industrial conglomerates in Nigeria. The company focuses on flour milling, pasta production, importation, blending, distribution and sale of fertiliser, manufacturing of flexible packaging materials and woven propylene sacks, livestock feeds and port terminal management.

Its food segment remains a vital part of the business, with contribution to group sales growing from 61 per cent in 2010 to 65 per cent in 2011. The company’s flagship product Golden Penny Flour is a well-known brand among end-users and a market leader in the flour industry.

In its 52 years of operations, Flour Mills has remained at the forefront of wheat milling in Nigeria. To maintain its competitive advantage, it has invested more than N150 billion over the past 10 years across the group. As a demonstration of confidence in the future of a prosperous Nigerian economy, the group plans additional investments of N200 billion in projects.

Today, Flour Mills has a rated milling capacity of 1,000 metric tons (MT) per day, (this includes its recently inaugurated West Mills in Lagos) making it one of the largest single site mills in the world.

The company’s flagship mill located in Apapa, Lagos comprises 10 integrated mills. Each mill was designed as a multilevel operation in order to optimise the use of gravity in the sifting process, thereby reducing the energy requirements. In addition, the company maintains dedicated mills to the processing of different wheat varieties to produce different flour types. This has ensured consistent quality of its products for 50 years. The Apapa mill also boasts modern silos with a storage capacity to 191,000MT.

Diversification

As part of its diversification strategy, FMN has acquired a 70 per cent stake in BAGCO, one of the largest suppliers of industrial sacks to many industrial and agro- allied companies in Nigeria. Recently, it acquired a 90 per cent stake in Rom Oil Mills Limited, Ibadan. Last week, it commissioned its ultra-modern milling complex, named West Mills.

It is noteworthy, that FMN runs profitably, a series of support or auxiliary businesses such as Golden Transport, which operates more than 500 trucks and the Apapa Bulk Terminal, which handles over 3 million metric tons of bulk cargo per annum. Such diversified business holdings, in addition to being viable and profitable in their own right, give FMN a tremendous competitive advantage in terms of agility, efficiency and service delivery.  
     
In addition to these ventures, FMN’s interest in becoming the nation’s dominant food business company is anchored on entities operating in agriculture, livestock feed and pasta manufacturing. As such, the collective clout of FMN stands poised to help achieve the company’s objectives whilst simultaneously improving the lives of untold numbers of Nigerians, employees and consumers alike.

Impact on the Bottom Line

The company’s various investment drives is beginning to reflect on its bottom-line. In its result for the first quarter (Q1) ended June 30, 2012, the firm recorded a growth of 10 per cent in turnover, 32 per cent in profit before tax and 42 per cent in profit after tax.

The company ended Q1’12 with a turnover of N70.7 billion, up from N64.2 billion in the corresponding period of 2011. Profit before tax rose from N3.9 billion to N5.1 billion in 2012, while profit after tax grew from N2.7 billion to N3.9 billion.

Turnover Dwarfed by Costs and Expenses

FMN reported a turnover of N238.80 billion for the 2011 financial year, 15.6 per cent over N206.61 billion in 2010. FMN, like other companies in the industry, has consistently increased revenue, as the market’s demand continues to grow. This consistent increase in revenue has however not always translated to growth in profitability. Despite the 15.6 per cent increase in turnover, the company’s profit after taxation declined by 44.2 per cent year-on-year to N9.45 billion.

In the 2010 financial year, the company made N16.95 billion as PAT, growing its bottom line by an outstanding 333 per cent. During that financial year, the company saw a comparatively small increase in cost of sales, relative to the increase in turnover, while its debt profile improved.

In the more recent financial year, the growth in revenue was also impacted by a commensurate increase in the cost of its business operations. Net earnings thus fell below the peak reached previously. Production activities and spending increased with a less than equal increase in sales revenue. The increase in stock,  however,  foretells a possible increase in profits in the next financial year as stocks are sold down and revenue is generated from the previous year’s production activities.

Capital Raising

In 2010, the company successfully completed the first tranche of a N70 billion debt issuance programme – N35 billion through a senior unsecured redeemable bond with a five year tenor due in 2015 and a 12 per cent coupon rate paid semi-annually in arrears.  This was followed by a  rights’ issue of  N34.97 billion naira ($220.80 million) through the sale of 455.56 million ordinary shares at N62 per share.

Company’s Prospects

Speaking at the company’s annual general meeting held in Lagos, last week, Chairman of Flour Mills Nigeria Plc, Mr. George Coumantaros, assured the company’s shareholders that the management would continue to work hard to ensure continuous improvement in returns to stakeholders in the years ahead.

He disclosed that the company had embarked on an expansion programme that would improve its production capacity and strengthen its leadership position in the flour milling industry.

According to him, shareholders should also expect improved dividends, explaining that the company’s inability to pay high dividends was as a result of the expansion drive, which was capital intensive and required all the funds the company could muster.

Coumantaros said the company’s plan to invest about N200 billion in different projects, was designed to allow it become a major player in all stages of the food value chain. “Flour Mills has invested more than N150 billion over the past 10 years across the group.

As a demonstration of confidence in the future of a prosperous Nigerian economy, the group plans further investments in projects worth N200 billion. Our goal is to be involved in all stages of the food value chain where a profitable agro-allied platform of cultivating and processing locally produced raw materials will ensure the growth and success of our food business.

“In pursuit of our goals in the food and agro-allied businesses, we continue to explore growth opportunities through acquisitions, mergers, take-overs and other forms of business combinations in other to broaden our earnings base, create synergies and build a profitable and sustainable future,” he said.