Honeywell Flour achieved the strongest growth in profit in three years in its 2013/14 financial year ended March. Stable growth in sales revenue and moderation of operating cost lifted operating profit considerably but an upsurge in interest expenses prevented much of the gains from flowing down to the bottom line.
Mr. Olarewaju Jaiyeola, the company’s managing director/chief executive officer, operated with a higher level of debt than in the prior year. He therefore had to sacrifice profit margin, as he devoted a significantly increased proportion of revenue to interest expenses.
Sales revenue grew by 20.5% to N55.08 billion in 2014, which is a stable growth after an improvement of 20% in the preceding year. The company has maintained an accelerated growth in sales revenue in the past five years. This is despite the problem of over-capacity in the flour-milling sector, which has resulted to volume declines in some leading companies.
Cost of sales moderated during the year at an increase of 18.1% to N44.63 billion against the increase of 20.5% in sales revenue. That lifted gross profit by 32% to N10.46 billion, raising gross profit margin from 17.3% in 2013 to 19% in 2014. A leap of about 80% in other income reinforced the performance, which was moderated however by an increase of 21.2% in selling/distribution expenses to N3.49 billion. The company still achieved an increase of 46.1% in operating profit to N5.44 billion.
A significant event in the year is the shift from a net finance income position in the preceding year to a significant net negative income figure in 2014. Interest cost rose by 257.4% to N1.89 billion during the year and created a net finance cost of about N1.20 billion. That claimed a good part of the revenue gains and cost savings and permitted only an increase of 11.1% in pre-tax profit. A decline of 8.7% in tax expense raised after tax profit by 17.9% to N3.35 billion. Net profit margin slipped from 6.2% in the preceding year to 6.1% in 2014.
Profit growth nevertheless accelerated from 5.2% in 2013, representing the fastest profit growth for the company in three years. The company has maintained stable growth in profit in the past five years, which is unmatched by leading companies in the business. Flour Mills has suffered profit drops for the past three years running. Dangote Flour closed last financial year at a loss after two years of rapid profit drops. Profit was virtually flat for Northern Nigeria Flour Mills in 2014.
The high rise in interest expenses for Honeywell Flour follows a major increase in balance sheet debts. Long-term financial liabilities grew by 91.4% to N10.66 billion during the year. Short-term debts also increased moderately at N26.42 billion during the period.
Other major changes in the balance sheet include an increase of 12.8% in inventories to N11.29 billion, a drop of 18.7% in trade and other receivables and a lift of 195.8% in cash and bank balances.
The changes in the balance sheet resulted in a major improvement in the company’s cash flow position during the year. Operating activities generated a net cash flow of N6.43 billion compared with a net cash utilisation of N1.79 billion in the preceding year. Net cash utilisation for investing activities dropped from N6.60 billion to N2.26 billion during the review period.
Proceeds from borrowing continued to keep net cash flow from financing activities positive at N3.17 billion against N7.77 billion in the preceding year. Loan drawdowns enabled the company to achieve a net cash increase of N7.34 billion in 2014, up from a net decrease of N624 million in 2013.
Honeywell Flour earned 42 kobo per share in the 2014 financial year against 36 kobo in the preceding year. Earnings per share has improved every year in the past five years from 15 kobo the company recorded in 2010. It has proposed a cash dividend of 17 kobo per share but the book closure and payment dates are yet to be announced.
