Honeywell Flour Mills: Reaping the Fruits of Expansion

31 Jul 2013

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Oba Otudeko, Chairman,  Honeywell Flour Mills

Goddy Egene
Honeywell Flour Mills (HFM) Plc entered the nation’s capital at the peak of the stock market downturn in 2008. That was the period when investor confidence hits its nadir. The flour milling firm made an initial public offering (IPO) that year preparatory to its listing on the Nigerian Stock Exchange (NSE). Despite the low patronage the market was experiencing, HFM succeeded with the IPO and had its shares listed on the exchange in 2009.
Since its listing, the company has not disappointed investors who subscribed to its shares as it has been delivering returns to them in form of dividend.

Corporate Profile
HFM is part of the Honeywell Group, an indigenous Nigerian conglomerate engaged in select businesses in key sectors of the Nigerian economy covering foods & agro allied; energy; real estate; services and; infrastructure. HFM is one of the   major flour milling company in Nigeria. The company was   initially registered as Gateway Honeywell Flour Mills Limited on in 1985. But a change in the ownership of the firm in 1995 led to a change of name to Honeywell Flour Mills Limited.

It is believed that the entry of HFM  into the flour milling industry in Nigeria redefined industry standards following its high quality that was said to have compelled an improvement in the quality of flour products by other players in the industry.

Over the years, HFMP has positioned itself as one of the market leaders in milling, processing and packaging of flour and other wheat based products. Specifically, HFM produces and markets four major product brands. The range of products include: Honeywell Superfine Flour, Honeywell Semolina, Honeywell Whole Wheat Meal and variants of Honeywell Pasta and Honeywell Instant Noodles.
The company has 100 per cent ownership of Honeywell Superfine Foods Limited (HSFL), which commenced operations in December 2006 as a vertical integration of the company’s operations to develop, produce, market and sell flour-based semi-processed food products in the fast moving consumer goods sector.

The Chairman and founder of HFM is Oba Otudeko, while the Executive Vice Chairman is Babatunde Odunayo. Other directors are: Obafemi Otudeko, Nino Ozara, Dave Obray; Akinsoji Akintayo, Lt. Gen. Garba Duba (rtd) and Jens Mollenbach.

In an apparent move to streamline its operations and enhance shareholder value, HMF recently embarked on a restructuring by which HSFL was converted into a division of HFM.
Otudeko had explained that even though both companies had hitherto enjoyed certain synergies as a result of their forward/vertical alignment, there was still considerable scope for the derivation of other benefits with further integration.

“To further enhance shareholder value, an internal restructuring of the Honeywell Flour Mills Plc Group is required to optimise operational efficiencies, reduce costs and extract more synergies from HSFL and its parent company, HFMP. After absorption, the resultant entity will benefit from more efficient allocation of resources from the streamlining of support functions like marketing, logistics, information technology, human resources management and finance,” he said.

Expansion to Enhance Capacity
Prior to this integration of its subsidiary as a division, HMF had embarked on a N10 billion expansion project that saw an increase in its production capacity by 62 per cent. The expansion was aimed at ensuring that the company meets the increasing demand for its products. The expansion was successfully completed close to the 2013 year end with the addition of two mills to its existing plant in its Apapa, Lagos factory.

Odunayo said state-of-the-art facilities designed, produced and installed by BUHLER, noted for the best milling equipment supplier in the world. According to him, HFM now has the capacity to produce 2,610 metric tonnes per day of its products.
“This expansion is therefore a further testimony of consumer confidence and wide acceptance of our products. We see this positive trend continuing and are very upbeat about the future growth and prospects for this company,” he said.

He told customers recently the expansion project, which also included the completion of a-first-of-its-kind automated warehouse in Nigeria, would lead to business growth and more profits for them.
He disclosed that apart from the expansion, due to the congestion and space constraint at Tin Can Island Port, the company had acquired 64 hectares of land around the Sagamu interchange along the Lagos – Ibadan expressway. This vast expanse of land, he said, would be used for future expansion including new pasta, noodles, and flour factories for increased production of all the products.
Financial Performance
HFM last week announced its audited results for the year ended March 31, 2013, showing the impact of the expansion, though minimally. Revenue grew by 20 per cent from N38.052 billion in 2012 to N45.709 billion in 2013. Gross profit grew by 22 per cent from N6.493 billion in 2012 to N7.921 billion in 2013. However, high sales and distribution expenses impeded the company’s ability to record a higher growth in profit after tax (PAT).  PAT managed a six per cent growth to stand at N2.843 billion compared with N2.693 billion the previous year. Sales and distribution expenses rose by 59 per cent from N1.806 billion to N2.877billion in 2013. However, the company was able to control the administrative expenses and finance cost that rose marginally. The administrative cost rose by about six per cent while finance cost remained almost flat at N528 million (N523million).

The company maintained gross profit margin of 17 per cent in 2013, just like the previous year. This meant that for every N1 of sales, 17 kobo was translated into profit. But the high cost of sales and distribution affected the net profit margin, which fell from 7.1 per cent in 2012 to 6.2 per cent in 2013. HFM ended the year with total assets of N55.4 billion as against N47.9 billion in 2012. Net assets of N18.558 billion, was recorded up by about nine per cent from the N17 billion in 2012. Earnings per share rose to 36 kobo from the 34 kobo recorded in the previous period. Out of this EPS, shareholders will receive 16 kobo as dividend per share, compared with 15 kobo the previous year.

The performance of the HFM share price at the stock market is relatively encouraging with positive growth potential.  So far this year, the shares of HFM have posted the second best returns in terms of capital appreciation among the four flour milling firms listed on food products subsector of the NSE. HFM rose by 51 per cent behind 55 per cent recorded by Northern Nigerian Flour Mills Plc. Flour Mills of Nigeria Plc 32 per cent, while Dangote Flour Mills returned 16 per cent.
Future Prospects

Considering the impact its expansion had on the revenue despite the fact it was  completed towards the end of company’s financial year end, analysts are of the opinion that the planned establishment of  integrated foods complex in  Ogun State holds  much prospects for all stakeholders.

On this planned expansion, Otudeko said: “The company has yet again shown its readiness and ability to thrive in challenging economic conditions due to its committed team of professionals who demonstrate willingness to pursue and achieve the company’s long-term vision of sustainable growth. An improved performance is expected in the coming years as activities are underway at a rapid pace to develop and complete the Honeywell Integrated Foods Complex in Ogun State.”

Speaking in the same vein, Odunayo, HFM will continue to produce bread flour and other wheat-based food products at its existing factory located at Tin Can Island, Apapa, Lagos because of its proximity to the Port.

“However, the Honeywell Integrated Foods Complex at its Sagamu site will situate several food production and processing factories with the emphasis on manufacture of value-added human and animal food products which utilise significant quantities of locally sourced raw materials like maize, cassava, soybeans and sorghum. This will help us to meet consumers’ increasing demand for Honeywell brand of quality food products,” he said.

According to him, “a key thrust of our foods expansion strategy is to support local farmers to grow larger quantities of grains and crops via out grower programmes for which we shall guarantee produce off-take. In this manner, we will be supporting the realisation of the government’s agriculture transformation agenda which is aimed at achieving food security and creating thousands of jobs for Nigerians.”

Odunayo noted that the integrated foods complex would directly employ about 3,000 workers in technical, sales, administrative and management functions and the project is expected to be completed over the next three years.

Tags: Nigeria, Featuered, Business, Oba Otudeko, Honeywell Flour Mills

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