Flour Mills of Nigeria Plc, published unaudited its nine months financial statements for 2023, reporting third quarter standalone EPS of NGN0.90 against NGN1.57 in 2022 and 9M-23 EPS of NGN2.87 (9M-22: NGN4.00). The EPS contraction was underpinned by a 127.0% y/y expansion in net finance costs.

Revenue grew by 30.2% y/y in Q3-23 (9M-23: 35.0% y/y), driven by substantial growth across the Food (+41.4% y/y), Agro-Allied (+14.7% y/y) and Sugar (+4.5% y/y) business segments, amid a decline in support services (-2.5% y/y) revenue.

In the press release which accompanied the financial result, management cited (1) its retail expansion and proactive pricing of its food products, (2) the commissioning of a new fertilizer blending plant, and (3) increased volumes across the oils and fat, and sugar product lines, as the key drivers of the stellar revenue expansion.

However, sequentially, revenue grew by 3.3% q/q, primarily driven by the Food business (+19.8% q/q) amid declines across the remaining segments – Agro-Allied (-27.1% q/q), Sugar (-19.0% q/q) and Support services (-2.5% q/q). Management indicated that it experienced challenges in Q3-23, which we suspect was majorly influenced by the logistical challenges in the country at the time.

Gross margin (+22bps) increased to 8.8% in Q3-23 (Q3-22: 8.5%), reflective of the faster revenue growth (+30.2% y/y) relative to costs (+29.9% y/y). We highlight that the cost pressures in the period emanated from the increase in raw materials costs and the pass-through impact of currency devaluation and a high inflationary environment.

Owing to the growth in gross margin, EBITDA (+17bps) and EBIT (+6bps) margins came in higher at 7.6% and 5.5%, respectively, despite a 119.3% y/y increase in operating expenses.

Net finance costs increased significantly by 127.0% y/y, following a 123.4% y/y increase in finance costs and an 8.1% y/y decline in finance income. We attribute the higher finance costs to increased loan facilities on the company’s books. As of 9M-23, total borrowings increased by 69.8% y/y to NGN303.72 billion (9M-22: NGN178.85 billion).

Overall, Q3-23 standalone PBT declined by 33.0% y/y to NGN6.57 billion (Q3-22: NGN9.77 billion). Following a tax expense of NGN2.25 billion, PAT printed NGN4.32 billion (Q3-22: NGN6.52 billion).