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FMN Announces 20% Dividend Increase In Q4

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Nigeria’s leading integrated food business and agro-allied Group, Flour Mills of Nigeria Plc (Flour Mills or FMN), has announced its audited 2018/19 financial results, ending the year with a strong quarter 4, a full year result that shows a 30% reduction of its financing cost and a strengthened balance sheet, enabling the Group to increase its dividend by 20%.

Key Highlights The Group’s Q4, 2018/19 improved by N1.9 billion, when compared to the same period last year, with full year Profit Before Tax of N10.2 billion, compared to N16.5 billion in the year ended 31st March 2018.

Deleveraging continued with total net debt reducing by N21.2 billion and financing costs by 30% (N9.8 billion Naira) to N22.9 billion as at 31st March 2019 Proposes dividend increase of N0.20k to N1.20k per share.

This is subject to shareholders’ approval at the company’s AGM. 2019 outlook – Continuous growth is envisaged in key segments such as Food and Agro-Allied, as targeted strategies deliver improved margins and operational efficiencies.

Continuous implementation of turnaround initiatives in the Agro-allied business, accelerated expansion in the B2C segment, optimal operation of our supply chain and further balance sheet management is expected to result in higher profitability.

Operational Review In spite of the prevailing economic headwinds and harsh operating environment which is further heightened by the logistics challenges in Apapa; FMN has continued to make remarkable progress with the Group’s strategic directive to focus on market expansion while realigning its food and agro-allied businesses for sustainable growth and profitability.

In 2018, we undertook a series of strategic actions designed to improve returns and deliver maximum gains for our investors.

Top of such actions was the restructuring process that saw all FMN Group businesses in the agriculture sector aligned under Golden Fertilizer company, a fully owned Holding company.

The decision has already started to yield appreciable improvements within the group, in the areas of cost maximization and improved operational efficiency as the businesses make the most of their competitive advantage and synergies.

This is further supported by the strong cost control measures that have been put in place by management within the year under review, In the agriculture space, FMN has continued to consolidate on its investments, with a strong focus on innovative and efficient use of resources.

Accordingly, the Group is resizing and simplifying the operations of some of the farms which form an integral part of our backward integration strategy with a few of the smaller experimental farms being scaled-down, whereas we continue to focus on the key units.

Commenting on the result, Anders Kristiansson, Group Chief Finance Officer, said: “Our strategy to restructure the balance sheet base and optimize the financing costs have started to yield the desired results, as the business showed increasing levels of efficiency.

Despite ongoing pressures on consumer disposable income in many of our target categories, we continued delivered a stronger quarter 4 than last year.” Paul Gbededo, our Group Managing Director, commented: “We have made substantial progress this year, even in the face of an adverse and challenging business environment.

Our growth and efficiency initiatives across our various functions and businesses have started to show anticipated gains as we continue to focus on organic sales growth and position the business for continuous profitability.

FMN has undergone several functional and structural changes within the last year, with innovation and focus on our consumers, at the heart of our strategic direction.

We are positive that we will see even greater achievements in our financials in the following quarters as we continue to focus on value creation for our shareholders.

To that end, we will be proposing the declaration of a dividend to our shareholders with a significant increase over last year.”

Auditing

Dangote Sugar Refinery Revenue recovers but cost pressures remain

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Dangote Sugar in its recently released 9M 2019 financials reported a marginal y/y growth in revenue to N117.4 billion in 9M 2019 from N116.8 billion in 9M 2018. However, on a q/q basis, Revenue dipped 12.2% q/q to N37.1 billion in Q3 2019 from N42.2 billion in Q2 2019. We note Revenue in Q3 2019 came in higher than Q3 2018 Revenue by 13.4% y/y. Meanwhile, Net Income declined 12.0% y/y to N14.7bn for 9M 2019 while declining 6.2% q/q to N3.7 billion for Q3 2019.

We have revised our revenue estimate and consequently profit lines upward given recovery in volumes on the back of reduction in influx of smuggled sugar as well as recovered market share following price increase by key competitor, Golden Penny (Flourmills). However, we note that cost pressures stemming from higher raw sugar price as well as increasing freight costs due to the Apapa wharf gridlock remains a source of concern. Thus, despite an upward revision of our key profit lines, they remain lower than 2018 numbers.

We raise our target price for Dangote Sugar to N13.87/s from N13.27/s previously while we maintain our Hold recommendation on the stock given. We note that investors’ interest in the stock has improved over the past few months given attractive dividend yield as well as news of the border closure. We are however less optimistic given the uncertainty around the timeline for the border closure. We arrive at our target price using a combination of the DCF and relative valuations in a ratio of 60:40.

Dangote Sugar in its recently released 9M 2019 financials reported a marginal 0.6% y/y rise in Revenue to N117.4 billion in 9M 2019 from N116.8bn in 9M 2018. However, on a q/q basis, Revenue dipped 12.2% q/q to N37.1bn in Q3 2019 from N42.2 billion in Q2 2019. However, we note Revenue in Q3 2019 came in higher than Q3 2018 Revenue by 13.4% y/y which suggests the possibility that the company may be feeling the positive impact of the border closure which has limited entry of smuggled sugar.

Across business segments, sales of the 50kg bag category grew 0.9% y/y to N111.2bn while Revenue from retail sugar was up 2.7% y/y to N3.3bn. On the other hand, Revenues from molasses and freight services were down 26.8% y/y and 7.3% y/y. Furthermore, we compared business segment growth in Q3 2019 with the same period in 2018. We observed strong Q3 2019 y/y recovery in the 50kg bag category (up 15.4% y/y) and Retail sales (up 7.3% y/y). The strong rebound reflects reduction in the influx of smuggled sugar.

The Cost of Sales (adjusted for depreciation) was up 2.4% y/y to N85.4 billion for 9M 2019 from N83.3 billion in 9M 2018. The y/y increase in Cost of Sales reflects the mild pressure on raw sugar prices in the first nine months of the year (our benchmark raw sugar price is up 2.2% y/y). This is notably evident in the 4.6% y/y increase in raw material costs. On a q/q basis, Cost of Sales fell by 13.3%, higher than the 12.2% q/q decline in revenue.

The decline in Cost of Sales reflects lower volumes as well as softer q/q raw sugar price (Q3 2019 vs Q2 2019). Against this backdrop, Gross Profit fell 4.1% y/y to N32.1 billion in 9M 2019 from N33.4 billion in 9M 2018. On a q/q basis, Gross Profit was down 8.6% to N9.0 billion in Q3 2019 from N9.9 billion in Q1 2019. Gross margin was 27.3% in 9M 2019, 1.3ppts lower than the 28.6% reported for 9M 2018.

 

 

 

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Auditing

Banks Boosts Total Assets By 10% to N41.4 Trillion in a Year

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In its bid to show growth in the banking sector, the total assets of the 27 deposit money banks rose by 10 percent, year-on-year to N41.4 trillion in the 12 months ending October 2019.

The growth however represents a slight decline when compared to 11 percent growth recorded in the 12 months ending October 2018.

The Central Bank of Nigeria (CBN) disclosed this in its November Economic report which revealed that total assets and liabilities of banks rose to N41.425 trillion as at October 31st 2019 from N37.338 trillion as at October 31st 2018, representing 10 percent growth.

According to reports, “Total assets and liabilities of commercial banks amounted to N41.4 trillion at end-October 2019, showing 4.6 per cent increase, compared with the level at the end of the preceding month. Funds were sourced, mainly, from increase in unclassified liabilities, and the mobilisation of time, savings and foreign currency deposits. The funds were used, mainly, to acquire unclassified assets, foreign assets and to boost reserves.

“Commercial banks’ credit to the domestic economy rose by 0.6 per cent to N22.3 trillion at end-October 2019, compared with the level at the end of the preceding month. The development was attributed to the rise in its claims on the private sector.

“Total specified liquid assets of banks stood at N14.3 trillion at end October 2019, representing 59.3 per cent of their total current liabilities. At that level, the liquidity ratio was 0.9 percentage point lower than the level at the end of the preceding month, and was 29.30 percentage points above the stipulated minimum liquidity ratio of 30.0 per cent.

Experts commend CBN for cutting lending rate to 13.5%

“The loan-to-deposit ratio, at 61.9 per cent, was 0.3 percentage point below the level at the end of the preceding month and was lower than the maximum ratio of 80.0 per cent by 18.10 percentage points.” The report added.

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Auditing

FCMB Records N135 Billion Earnings, N11 Billion Profit in Nine Months

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FCMB Group Plc has announced a profit after tax of N10.791 billion for the nine months ended September 30, 2019, showing a marginal decline of 4.8 per cent compared with N11.341 billion recorded in the corresponding period of 2018.

According to the results released recently, showed gross earnings of N135.824 billion, up 2.2 per cent from N132.875 billion in 2018. Net interest income rose from N53.235 billion to N56.321 billion, while net fee and commission income fell from N15.459 billion to N15.307 billion in 2019. Net impairment losses fell by 46 per cent from N14.626 billion to N7.852 billion.

However, personnel expenses rose from N18.111 billion to N21.563 billion, just as general and administrative expenses increased from N21.857 billion to N23.439 billion, while other operating expenses grew from N12.267 billion to N13.387 billion.

Consequently, profit before tax fell from N14.767 billion in 2018 to N12.803 billion, while profit after tax stood at N10.791 billion compared with N11.341 billion in 2019.

The nine months performance indicates that FCMB Group has a significant ground to cover in the remaining quarter of 2019 to record higher bottom-line for the full year.The financial institution had posted a growth of 73 per cent in profit in 2019.

The Chairman of FCMB Group, Mr. Oladipupo Jadesimi, said: “In 2018, we continued to move forward on the path of good governance, strengthening and improving our corporate governance structure and bringing it into line with our long-term strategy and the highest international standards. This was in order to increase the confidence of our shareholders, investors and other stakeholders in an environment that is demanding even more transparency.”

Also speaking, the Group Chief Executive of FCMB Group Plc, Mr. Ladi Balogun, said: “The Commercial and Retail Banking Group (which includes First City Monument Bank Limited, Credit Direct Limited, FCMB (UK) Limited and FCMB Microfinance Bank Limited) grew its profit by 61 per cent, driven by improved performance in our consumer finance business and increase in fees and commissions.”

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