Nigeria’s infrastructure company (Infra-Co), which is expected to grow to N15trn ($37bn) in assets and capital in the next few years, will ... go a long way in helping to raise capital from private investors and transforming the power sector, says Kola Adesina, group managing director at Sahara Power Group, an energy and infrastructure company.
Analysts at FBNQuest said the acquisition will make FMN the second-largest miller in Nigeria, with an estimated capacity of 9,600tn per day. It will be second only to Singaporean firm Olam, which has a capacity of 11,140tn per day. Olam’s strategy since it came into the market in 2012 has revolved around big acquisitions: it acquired Dangote Flour Mills in 2019 and has since controlled 44% of the market share. The analysts say that the acquisition of Honeywell will drive FMN’s market share from its current level of 32% to about 42%.
Olam is pursuing its own plans to boost local production and processing capacity. Last year, it announced a programme to trial new seed varieties and support local cooperatives in areas that can produce wheat in northern Nigeria. Then, in February of this year, its subsidiary Crown Flour Mills announced that it will invest $50m in new mills and storage capacity in Nigeria’s commercial capital, Lagos, and in Warri, an important city for the energy sector in southern Nigeria.
Sweetening the Honeywell pill
The Honeywell deal needs the regulators’ approval. It also faces an additional challenge in the form of a lawsuit by Ecobank Nigeria over money the company owes. The bank says that receivership proceedings have already begun. Honeywell’s performance is weaker than its peers and it has struggled to repay its debts in recent years. FMN hopes to turn Honeywell’s fortunes around and benefit from economies of scale.
In 2021, FMN reported strong financial results: top-line growth of 51% in the third quarter and 49% in the first nine months of the year, fuelled by an improving price and volume growth mix across its food, agro-allied and support segments. Its profit before tax in the third quarter was N9.8bn ($23.6m, 8% growth) and it made N25bn in the first nine months of 2021 (7% growth).
However, the company’s profit margins have been consistently low, which is a major concern among analysts and shareholders.
In an analysis of FMN’s recent results, FBNQuest Capital identified the segments with the highest sales growth and those that contributed the most to the company’s revenue. It reported: ‘Across its segments, food rose by 53.9% year-on-year (to N197bn), agro-allied by 67.2% y/y (to N56.1bn), sugar by 20.1% y/y (to N38.5bn) and support services by 58.34% y/y (to N10.67bn), respectively.’
After a changing of the guard, the management team says its focus is on reducing costs and improving profit margins. In December 2020, Omoboyede Olusanya, a former chief executive of telecom Etisalat, replaced Paul Gbededo as CEO. Gbededo had run the company since April 2013 and spent 38 years with the group.
On the flour side of the business, only so much can be done to control costs since Nigeria imports most of its wheat and Russia and Ukraine are major producers, which has led to a rise in prices. FMN CEO Olusanya told local media that the impact of the crisis will hurt global wheat production for at least 12 to 18 months: “When you look at all that and what then happens in pricing, obviously, if we don’t manage this well, there will be significant volume compression in terms of material that comes in and, therefore, the volume of food that is sold.”
In sectors where Nigeria has a chance to become self-sufficient, such as rice, the government of President Muhammadu Buhari is pushing for investors to boost their local production. In 2019, Nigeria closed its land borders with neighbouring countries in order to stop the smuggling of inexpensive foreign rice and other products. The Flour Milling Association of Nigeria is setting up buying centres in 15 northern states in order to work with wheat farmers, particularly those benefiting from the Central Bank of Nigeria’s Anchor Borrowers’ Programme.
In the publication of its fiscal year 2021 results, FMN noted that a cardinal part of its strategy was the ‘continued focus on local content with further backward integration investments and strategic partnership with the Flour Milling Association of Nigeria’.
Other important elements in the company’s strategy include the ‘focus on retail customers with accelerated expansion in the business-to-consumer (B2C) segments; increased investments in regional distribution centres targeting B2C products; and enhanced roll-out of investments in route-to-market throughout the year’.
Planting more sugarcane
A large part of FMN’s agro-allied investments has been in sugar production. FMN’s major competitors in the sugar sector are Dangote Sugar, which is estimated to control about 55% of the market, and BUA Group.
In 2018, President Muhammadu Buhari commissioned FMN’s N50bn Sunti Golden Sugar Estate, a 100,000-tonne capacity sugar processing plant at Mokwa, Niger State. The plant is on an estate spreading over 17,000 hectares, 10,000 of which is dedicated to sugarcane.
In April last year, the company acquired an additional 5,200ha for its sugar estate in Niger State. The company stated that it planned to spend N160bn on its expansion plans and another sugar mill in Nasarawa State.
FMN says it plans to keep its investments going, as the Nigerian agribusiness market has huge opportunities. ‘As part of its expansion plans to meet growth demands, the Group installed a new pasta line, concluded the construction of a soya plant in Agbara, and purchased 60 new trucks during the review period. The Kaduna Feed Mill is near completion and is projected to be operational in May 2022,’ the company added in its fiscal year 2021 results. The $50m investment in Kaduna, in Nigeria’s northwest, will produce food for livestock, poultry and fish.
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