Honeywell: fight against rising financial costs, other

Darasimi Adebisi
Honey Well Flour Mills Plc in its earnings and financial statements for the year ended March 31, 2021 recorded a significant increase in finance costs and cost of sales against a backdrop of stronger revenue growth.

The company was faced with an increase in the consumption of raw materials and packaging, coupled with high interest on loans and overdrafts during the period under review.

With increased production activities, currency issues, and COVID-19-induced disruption in global trade that affected the supply of raw materials and packaging materials, the cost of sales increased by 41.13% to reach 93.97 billion N during the year under review, against 66 N. 59 billion recorded during the previous financial year.

Cost of sales factors were 82.66 billion naira of raw materials and packaging consumed in 2021 compared to 57.24 billion naira in 2020, while plant maintenance and electricity costs increased. 25% to 3.7 billion naira in 2021 against 2.96 billion naira in 2020.

In addition, finance costs increased by 44% to close the 2021 fiscal year at 6.07 billion naira compared to 4.23 billion naira recorded in 2020.
With the growth in cost of sales, gross profit rose to N15.62 billion in 2021, an increase of about 13% from N13.86 billion in 2020.

The effect of higher cost of sales and finance costs contributed to the company’s profit margin which fell 0.14 basis points to 1.44% in 2021, from 1.58% in 2020, the gross profit margin having fallen by nearly three basis points to 14.26% in 2021 against 17.23% recorded in 2020.

Profit margin
Profit margin is one of the profitability ratios commonly used to gauge how well a business or business is making money. It represents the percentage of turnover that turned into profit.
Meanwhile, the company was able to generate revenue during the period following increased consumer demand as part of the complete reopening of businesses and aggressive price increases across all of its product lines.
A breakdown of the company’s revenue by geographic location showed that the bulk of the company’s revenue is generated in the Nigerian market.

Revenues for the period increased 36.2% to 109.59 billion naira in 2021, from 80.45 billion naira recorded in 2020, which Honey Well Flour Mills’ Apapa plant contributed massively to its revenues. , followed by Sagamu.
Three factories located in Ikeja, Sagamu and Apapa identify the operational segments of the company.
The Ikeja segment manufactures noodles; The Sagamu segment manufactures pasta while the Apapa segment manufactures flour, semo, flour, brown flour and baker’s delight flour.

However, the 2021 financial statements of Honey Well Flour Mills showed that its Apapa plant contributed to sales and operating profit, while Ikeja’s contribution to sales and operating profit dropped.

The Apapa plant contributed 77.6% of the company’s total turnover and its turnover increased by 31.24% to 85.02 billion naira from 64.78 billion naira in 2020, which was slower than the growth of the Sagamu plant, which saw the strongest year-on-year growth. 105.4% of revenues to 19.08 billion naira in 2021 against 9.29 billion naira in 2020.
The Ikeja plant contributed 5.01% of total turnover and recorded a -13.81% drop in turnover in 2021 to 5.49 billion naira from 6.37 billion naira registered in 2020.

Regarding operating expenses, Honey Well Flour Mills recorded a decrease of 4.3% to 8.12 billion naira in 2021 from 8.48 billion naira in 2020, attributable to a decrease of 8.2 % of sales and distribution expenditure to 5.54 billion naira in 2021 compared to 6.04 billion naira in 2020.
In total, Honey Well Flour Mills reported operating profit of 39% to 7.65 billion naira in 2021, compared to 39.08 billion naira recorded in 2020.

The company thus declared an increase in profit before tax (PBT) of 24.13%, from 1.27 billion naira in 2020 to 1.58 billion naira in 2021.
In 2019, Honey Well Flour Mills reported a significant drop in PBT of 87.53% year-on-year, but saw a rebound in 2020, although not as high as 2017 levels.

For 2020, the company’s profit after tax (PAT) grew faster than profit before tax (PBT), PAT increased by 73.08% year-on-year to reach 1.13 billion naira in 2021 from 650 , 49 million naira recorded in 2020, due to a 27.25% tax cut and despite a 69.70% increase in the levy on the police trust fund.

The flour processing company therefore offered a dividend as management maintained its return on investment for shareholders to build confidence.
During fiscal year 2021, management proposed a dividend of N 0.07 in 2021 against N 0.04 proposed in 2020.

Balance sheet position
Honey Well Flour Mills’ balance sheet size position maintained a marginal increase driven by growth in cash and cash equivalents which closed 2021 at 20.3 billion naira compared to 12.3 billion naira in 2020.
The company recorded an increase of around 4% of its total assets to 147.39 billion naira in 2021, compared to 142.26 billion naira recorded in 2020.

Non-current assets fell nearly four percent to 101.32 billion naira in 2021 from 105.33 billion naira in 2020, while current assets increased significantly by 24.5% to 45.94 billion naira in 2021 compared to 36.89 billion nair in 2020.
Current liabilities fell to 27.5 billion naira in 2021 from 3.46 billion naira in 2020, with long-term borrowing closing in 2021 at 22.5 billion naira compared to 26.77 billion naira recorded in 2020.

Current liabilities, however, increased by 15.5% to reach N 61.94 billion in 2021, from N 53.64 billion in 2020, to position the company’s total liabilities at N 89.43 billion in 2021 against 85.1 billion naira in 2020.
The breakdown of total debt showed that the company’s current debt increased by + 20.36 percent while its non-current debt decreased by -15.8 percent.

A review of the company’s 2021 financial statements showed that loans from First Bank of Nigeria Limited represented 45.98% of the company’s total non-current debt, while direct interventions from the Central Bank of Nigeria (CBN) and Bank of Industry contributed 0.55% and 10.22% of Miller’s loans.
Real Sector Support Fund (RSSF) loans under the CBN through Polaris Bank and Fidelity Bank accounted for 15.52% and 27.72% respectively.

Loan obtained
A term loan obtained in January 2017 from First Bank of Nigeria Limited was to facilitate the company’s cash flow. The facility has a limited term of 6 years, quarterly principal and interest repayment and an interest rate of nine per annum.

According to reports from 2021, the BOI loan was given to the company to finance the new pasta factory located in Sagamu.
The loan has a restructured maturity extended until February 2023, with a 12 month moratorium on principal repayment between January and December 2018. The facility is domiciled with Polaris Limited Bank.

In addition to the balance sheet position, total equity appreciated by 1.4% to reach 57.97 billion naira in 2021 against 57.36 billion naira in 2020.
The mill’s liquidity also improved, despite an increase in the company’s short-term debt.

The overall liquidity of the noodle maker improved in fiscal 2021; the liquidity ratio increased to 31.17% in 2021 against 25.93% in 2020. The company recorded its highest liquidity ratio in 2021 while its lowest ratio was recorded in 2017.

The company’s 2021 result showed an improvement from its current ratio, from 0.69 in 2020 to 0.74 in fiscal 2021, although analysts see a current ratio of 2.1 preferable and indicative of more stable liquidity.

The improvement in Honey Well Flour Mills’ current ratio is attributable to a 24.52% increase in current assets. In 2018, Honeywell Flour mills recorded their highest current ratio of 0.77, while the lowest ratio was seen in 2017.

Conclusion

Honeywell Flour Mills has had to go through a difficult time that Nigerian businesses have faced over the past year, especially with COVID-19, currency issues, infrastructure issues and other factors.
The company also had to contend with an economy where real disposable income continued to decline amid double-digit inflation weighing on purchasing power.

Going forward, the company should reduce its vulnerability to operating stocks by increasing its equity (which would reduce returns on investors’ equity) or by continuing to deleverage (which would reduce corporate leverage). business but would also reduce the return on equity).
On a positive note, there is evidence that the company has steadily improved on a number of key ratios lately.
Honeywell Flour Mills chief executive Lanre Jaiyeola in a 2021 financial results statement said: and the relentlessness of our workforce.

“We worked collaboratively to achieve our goals; better optimization of production and costs, guided by a clear strategy and a common goal. We remain committed to ensuring the provision of affordable nutritious food products to Nigerians, and we continue to provide our shareholders with long-term profitable returns from Honeywell Flour Mills Plc. “
According to the company, the future of its business would be shaped by continued investment in innovative product development, cutting-edge technology infrastructure and operational efficiency.

This is evidenced by the efficient use of its world-class factory in Sagamu, Ogun State, which has an annual pasta production capacity of 138,600 metric tons and contributed more than N19 billion to the turnover. overall business of the company in fiscal 2021, its second year of operation. .

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