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Flour Mills of Nigeria Q3 2022/2023 Result: Sales Numbers Up but Pre-tax Profit Drops 32.86% in Q3 2023

Finance expenses of N37.5 billion claimed all the increase in operating profit of Flour Mills of Nigeria Plc and sent pre-tax profit crashing by 41 percent to less than N15 billion at the end of the third quarter (Q3) of 2022.

The food and agro-allied company’s interim financial report for the nine months ended December 2022, shows that cost of finance has maintained three-digit high-speed growth for two quarters running at 197 percent quarter-on-quarter in the second quarter and 123 percent to N15 billion in the third.

Finance expenses grew by N21.4 billion year-on-year at the end of Q3, close to twice an increase of N11.5 billion in operating profit to N40.4 billion for the same period. Cost of finance claimed as much as 72 percent of operating profit of about N52 billion at the end of the period.

Rapidly growing finance expenses continue to reflect the company’s rising debts profile in a heightened interest rate environment.

There was an additional borrowing in Q3, which raised interest-bearing debts to the region of N338 billion at the end of December, up from less than N159 billion at the end of its 2022 financial year in March.

While finance cost accounts for the company’s loss of profit, it is not the only revenue-consuming expense line. All the other cost lines encroached on sales revenue and constricted margins from top to the bottom.

Cost of sales, the company’s biggest expense line, grew slightly ahead of sales revenue at the end of Q3 at roughly 36 percent to over N1 trillion compared to 35 percent increase in group turnover to N1.1 trillion.

Gross profit margin went down from 9.7 percent to 9.3 percent and gross profit improved by 28.7 percent to N103 billion at the end of Q3. This represents an increase of over N23 billion in gross profit but no part of the increase got down to the bottom line.

Selling and distribution cost took a major change of direction and raced all the way up from a drop of 23 percent in the second quarter (Q2) to an upsurge of 139 percent quarter-on-quarter in Q3 to N5.4 billion for the quarter.

With the massive increase in Q3, selling and distribution expenses also grew ahead of sales revenue at the end of Q3 at 38 percent year-on-year to close at over N13 billion for the period.

Administrative cost similarly reversed its slowdown at 9.6 percent in Q2 and soared by 112 percent quarter-on-quarter to N12.8 billion in Q3. That jerked up the nine-month figure to almost N31 billion, which is an increase of almost 44 percent compared to the 35 percent increase in turnover.

On the favourable side, impairment loss on trade receivables of N455 million at half year turned around to a net write-back of N653 million at the end of Q3.

Also, net operating gain of over N4 billion in Q3 cut down net operating loss of almost N12 billion at half year to N7.7 billion at the end of the quarter.

Sales revenue numbers have maintained an uptrend so far from N340 billion generated in the first quarter (Q1) to almost N381 billion in Q2 and further to N393.4 billion in Q3.

The performance, according to the company’s report, reflects sustained momentum across all business segments — led by 39 percent revenue growth in the agro-allied business following the commissioning of new fertilizer blending plant in May 2022.

The closing sales revenue of N1.1 trillion for the nine months of trading, represents additional revenue of close to N290 billion but rising costs claimed more than all the increase.

Against the 35 percent growth in turnover, group after-tax profit dropped by over 41 percent to N10 billion at the end of Q3

Nigeria’s flour milling business has come under severe strains as a conflict between Russia and Ukraine has disrupted international grain supply chains and domestic militancy has posed problems for local supply throughputs. Grain prices have spiralled since 2022 in local markets as farmers find it difficult to plant and harvest crops. A further problem has been disruptions in logistics and a fourfold rise in the cost of diesel used by truckers. 

With domestic prices rising and international demand affected by a gradually slowing global economy, the outlook for local grain millers is mildly bleak. On the bright side, millers have been able to pass on their higher costs to consumers and food processors, but the pass-on effect could wane as buyers trade down by looking for cheaper alternatives to milled seeds and tubers. Sorghum, Millet, Corn, and bean seeds have all seen prices spike as production value chains become increasingly vulnerable to price increases.

Heavier-than-expected rainfalls in 2022 also created supply difficulties as several farms were flooded and seeds and crops were lost. More than 27 states across the country were affected by floods, resulting in notable crop losses and price surges. Against this background, FMN, Nigeria’s largest grain miller saw a mixed fiscal outlook with sales rising against declining profitability.

FMN’s Q3 2023 financial results (noting that the company’s financial year end is March and not December) witnessed a decline in profit and a slight fall off in liquidity due to a decline in interest expense and capital expenditure (CAPEX). However, the company maintained an efficient asset turnover ratio. FMN managed the impact of inflation on its direct production cost with gross profit margin rising to 8.75%. Throughout 2023, FMN will have to manage liquidity and solvency, particularly in view of rising borrowing costs

.Key Highlights

  • Revenue increased by +30% from N302.15bn in Q3 2022 to N393.39trn in Q3 2023
  • Profit before tax decreased by -32.86% from N9.77bn in Q3 2022 to N6.56bn in Q3 2023
  • Interest expense rose from N6.79bn in Q3 2022 to N15.18b in Q3 2023
  • Current Ratio declined from 1.46 in Q3 2022 to 1.4 in Q3 2023 
  • Total Asset Turnover improved by 4k from 0.55 in Q3 2022 to 0.59
  • Total assets increased by +22.44% from N544.7bn in Q3 2023 to N667bn in Q 2023
  • Earnings per share declined by -42.7% from N1.57k in Q3 2022 to N0.90 in Q3 2023


FMN saw a significant increase in gross profit margin, rising by 33.49% in Q3 2023. This was driven by a 41.37% growth in food revenue and a 14% growth in Agro Allied revenue. However, while the company experienced strong revenue growth, Profit before Tax declined from N9.77bn in the corresponding period of 2022 to N6.56bn. The decline in profitability was also reflected in the Net Profit margin’s decline from 2.16% to 1.1%, this was despite a 21-basis point improvement in Gross Profit Margin. The profitability ratios show that while FMN may have adjusted prices upward and still retained market share the food maker faces challenges in managing operating expenses. Analysts say this is highly important in the competitive industry FMN operates. For instance, selling and distribution expenses rose from 2.26bn in Q3 2022 to 5.4bn in Q3 2023 while administrative expenses more than doubled from 6bn in Q3 2022 to 12.85bn in Q3 2023. Analysts recommend the implementation of cost-cutting measures and more efficient operations (see chart below).


The Sugar and Agro-allied Merchant’s liquidity ratios declined in Q3 2023, with the acid test ratio (a measure of liquidity after netting out inventory) falling from 0.53 to 0.43. The decline was due to a 46% increase in inventory, which could suggest that FMN is having difficulty in pushing volumes. Furthermore, the current ratio decreased from 1.46 in Q3 2022 to 1.4, although below the 2X threshold, this does not suggest that FMN is facing challenges in meeting short-term financial obligations. Rather, the company has maintained a stable cash position despite larger spending on plant and machinery, bearer plant, and Beth rehabilitation. However, the company recorded a significant increase in borrowings, which could impinge upon cash as debt repayments arise (see chart below).


FMN’s asset turnover ratio rose slightly to 0.59 in Q3 2023, higher than 0.55 in the corresponding period of 2022. The increase suggests that each naira committed by way of assets generated 55k revenue, which is a positive sign. FMN’s revenue growth outpacing asset growth could indicate that the company is effectively utilizing its resources and generating a higher return on investment. However, the company’s asset growth rate was still lower than its revenue growth rate, suggesting that FMN may need to invest in additional assets to sustain its growth in the future. Analysts believe FMN’s efficiency seems to be improving, but the company needs to focus on optimizing its operations to generate higher returns (see chart below).

FMN’s financial risk increased slightly in Q3 2023, with the growth of short-term borrowing rising by 26.39%, which was faster than the 12.19% growth in equity. This suggests that FMN is taking on more debt to finance its operations, which could lead to higher interest payments and affect the company’s profitability. Likewise, another gauge of leverage, the debt-to-equity ratio, rose slightly to 0.59 as the growth of long-term borrowing rose by 12.82%. While these increases are not significant, FMN should monitor its debt levels closely to ensure that they remain sustainable (see chart below).

Shareholder’s ratio
The decline in FMN’s Profit Margin weighed on Earnings Per Share (EPS). EPS fell 42% from N1.57 in Q3 2022 to N0.90 in Q3 2023. Shareholders would worry about dividend payout in Q4 given operating expenses and the implications of economic headwinds on revenue. FMN’s investment in Plant and Machinery however positions it to take advantage of consumer demand growth opportunities (see chart below).

Competitor Analysis
Producers of Fast-Moving Consumer Goods (FMCGs) managed to drive revenue growth in the three months that ended in December 2023, mainly through price adjustments. With a 30.19% revenue growth, FMN came in second behind BUA Foods which recorded a 37.8% growth in revenue. FMN however performed better in terms of gross profit margin (33.49%). In terms of liquidity, BUA Foods (1.88X), and Unilever (1.7X) performed better than FMN. While BUA has been committing resources to capital expenditure, Unilever has been reducing its plants’ size. FMN’s PBT provides better coverage for its interest expense obligations compared to BUA Foods.  FMN also outcompeted rivals in asset turnover (0.59), outperforming BUA Foods (0.21) and Unilever (0.2) (see chart below).
Concluding Thoughts: FMN’s Strategic Playbook
Flour Mills of Nigeria Plc’s expansion strategy is apparent. The company now holds 77.75% of Honeywell Flour Mills Plc 48.7% through Ecowise Horizon Investment Limited (a wholly owned subsidiary of Flour Mills of Nigeria Plc) and 28.7% held in proxy by Greywise Investment Solutions Limited, an associated company of Flour Mills of Nigeria Plc. However, as of 31 December 2022, the initial accounting for the business combination was incomplete.
FMN’s sugar value chain involves cultivating, processing, refining, and selling sugar this line of business is now a victim of a decline in global sugar production, FMN could, however, drive revenue by adjusting prices in its Food business value chain involving flour milling, pasta, and noodles production that show signs of relative price inelasticity, meaning that a rise in the price of these goods would cause a smaller than proportionate drop in volume of products bought by consumers.
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