Flour Mills Sells N5bn Commercial Papers to Improve Margins

Flour Mills of Nigeria

By Modupe Gbadeyanka

In order to get funds to execute some of its short-term operations that could improve profitability and margins, the management and board of Flour Mills of Nigeria Plc have concluded to sell commercial papers worth N5 billion to interested investors in the local debt market.

Business Post gathered that the flour milling company is offering the notes, which are part of the N100 billion CP programme, at a discount rate of 8.88 percent, with an effective yield of 9.50 percent.

It was learned that application for the exercise is expected to close on Thursday, December 12, 2019, with the settlement fixed for Friday, December 13, 2019.

Subscribers, who hope to buy the papers, which mature on Tuesday, September 8, 2020, are required to purchase a minimum of N5 million, with more subscriptions in multiples of N1,000.

Flour Mills said in a statement that it expects to meet its targets in the present financial year because it was resizing and simplifying operations of some of the farms, which form an integral part of its backward integration strategy with a few of the smaller experimental farms being scaled down, while continuing focus on key units.

According to the company, the consolidation of its agricultural businesses has started yielding appreciable contributions to the group in the areas of cost maximisation and improved operational efficiency as the businesses make the most of their competitive advantage and synergies.

It noted that despite the prevailing economic headwinds and harsh operating environment, especially for businesses in the congested Apapa, Lagos axis, the strong cost control measures put in place during the year has supported its growth projections.

Flour Mills expressed optimism that it would witness continuous growth in key segments of its food and agro-allied businesses in the new business year, noting that targeted strategies are expected to deliver improved margins and operational efficiencies.

It noted that the continuous implementation of turnaround initiatives in the agro-allied business, accelerated expansion in the business-to-customer segment, optimal operation of its supply chain and further balance sheet management are expected to result in higher profitability.

Recall that in 2018, the firm undertook series of strategic actions designed to improve returns and deliver maximum gains for its investors, including the restructuring process that saw all its businesses in the agriculture sector aligned under its wholly owned holding company, Golden Fertiliser Company.

But despite these actions, Flour Mills of Nigeria has witnessed contractions in sales and profitability in the immediate past business year as net profit declined by 70.6 percent from N13.6 billion in 2018 to N4 billion in 2019.

Gross profit margin dropped from 12.7 percent in 2018 to 10.1 percent in 2019, with net profit margin reducing to 0.8 percent in 2019 as against 2.5 percent in 2018.

However, the group’s debt-to-equity ratio improved from 101.7 percent in 2018 to 84.1 percent in 2019.

Also, in the financial year ended March 31, 2019 the company’s turnover went down by 2.8 percent to N527.40 billion from N542.67 billion in 2018, while the gross profit dropped by 22.4 percent from N68.8 billion in 2018 to N53.3 billion in 2019. Profit before tax declined by 38.5 percent to N10.17 billion in 2019 as against N16.54 billion in 2018.

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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