Apapa gridlock Impacts On Honeywell, Flour Mills Financial performance, lose N16.5bn revenue in Q1

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Due to the Apapa gridlock in Lagos, two major flour manufacturing companies operating in that axis, Honeywell Flour Mills Plc and Flour Mill of Nigeria attributed deep of N16.5 billion in their revenue’s first quarter (Q1) of 2018.

The fall in revenue can also be attributable to less inspiring sales from food segment, which may not be unconnected to weak consumer spending in the economy as well as smuggling in the North East.

Both companies also suffered dwindling profit as cost of operations rose significantly.

Flour Mills of Nigeria reported N15.9 billion loss in three months of 2018 as a result of revenue dropped from N148.9 billion to N133 billion in three months of 2017 while Honeywell flour also reported N531 million drop in revenue to N17.7 billion as against N18.27 billion reported in three months of 2017.

Further more, Flour Mills of Nigeria profit dropped to N3.6 billion in Q1 2018 from N4.5 billion in Q1 2017 amid weak revenue and hike in operating expenses.

Also, Honeywell Flour Mills reported 541 per cent drop in profit to N102 million in Q1 2018 from N643 million in Q1 2017.

Amehnews recalled that Dangote Sugar had announced 29.1per cent drop in revenue, blaming it on Apapa gridlock.

Dangote Sugar profit before tax thus dropped by 21.19 per cent to N19.90 billion in first half unaudited results of 2018 from N25.25 billion reported in prior half year results.

The company in a statement said, “The decline in sales volumes was due mainly to the continued presence of lower quality, unlicensed sugar being smuggled into the country and sold in key markets.

“It provides a ready alternative to trade customers who are not mindful of the quality implications of the product. Due to its lower price, it continues to exert a downward pressure on prices and sales volumes.

“Year on year there has been a reduction in the average selling price (currently ₦13,160/50kg bag vs ₦16,170/50kg bag in 2017) as the impact of the downward trend in global sugar prices comes through.

“Also, the Apapa access road traffic gridlock has had an adverse impact on our logistics and product distribution activities.

“Group revenue declined by 29.2 per cent was as a result of the decline in sales volume and price.

“Though we maintained our market leadership position in the sugar sector, the period under review was very challenging due to the impact of unlicensed sugar being sold in key markets nationwide, and logistics challenges brought about by the Apapa Access road traffic gridlock.”

The company said it is confident that the implementation of its Sugar Backward Integration Projects plan.

Meanwhile, Analysts at InvestmentOne Research said, Flour Mills of Nigeria’s turnover fell by 10.70per cent y/y to N133billion in first quarter of 2018. This was majorly reflected in the sales of food segment n.

“On the other hand, management stated that revenue during the year was driven by volume given the stability in pricing. We opine that the issue of smuggling especially in the North East, a serious challenge to the players in Agro allied sector, could have affected sales in Q1.”

“Going forward, we expect the successful issuance of N40billion rights issue to reduce the company’s finance cost thus supporting the PBT margin in the near term.

“In the same vein, the company opted to commercial paper which is cheaper to the bank loan could reduce its finance cost as highlighted by the management.

“Nonetheless, the recent rise in company’s leverage may slow the expected decline in finance cost.

“Furthermore, the company’s recent commissioning of the Sunti sugar Cane plantation and refinery plant could reduce company’s importation of raw material thus supporting gross profit margin.

“This combined with plans to acquire more land for further development, geared towards achieving the 6,500 metric tonnes per day (mtpd) capacity of the mill, may enhance the company’s gross profit margin performance over the medium to longer term given that c.70 per cent of the company’s cost of goods are dependent on foreign exchange

“ we see support to FMN’s performance from expected improvement in consumer demand due to potential for increased spending as electioneering intensifies in the later part of 2018,” InvestmentOne research team explained.


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