Aug 2006 Financial News

NFM Releases Half Year Results

Aug 29, 2006

National Flour Mills reported a Loss Per Share of 35.95 cents for the half year ended June 30, 2006. The Earnings Per Share (EPS) of the Company fell 719.82 per cent into negative territory from 5.8 cents reported for the corresponding period last year to (35.95) cents for the period under review.

According to the Chairman, the fall in EPS reflects a number of unplanned events within its operation. Firstly, the closure of the Edible Oil Complex as a result of the unfortunate explosion in late 2005 saw the end of an important component of the Company’s revenue source. In addition unresolved issues pertaining to the implementation of the Voluntary Separation Programme resulted in poor productivity towards the end of 2005 as well as industrial action in early 2006 restricted its capacity to meet customers requirements.

The Company’s Turnover in fact fell 32.43 per cent to $198.754 million as a result of the closure of the Edible Oil Complex in late 2005. Despite the fact that Cost of Sales dropped 28.39 per cent to $184.811 million, Gross Profit was down 61.74 per cent to $13.943 million while Operating Income fell 205.41 per cent to land in negative territory. Net Income dropped by a larger margin of 527.72 per cent to -$42.819 million due to the Exceptional Expense of $32.266 million. Net Income After Tax was down 719.82 per cent to -$43.216 million.

The Company has embarked on an eighteen month turnaround plan to maximize the benefits of the reduced staff overheads. The reduction is expected as a result of full implementation of the Voluntary Separation Programme; reduced conversion costs from the commissioning of the new flour mill; aggressive expansion in its feed business; and more profitable ways of supplying its oil and rice markets both locally and regionally.

NFM has implemented a new organizational structure to meet its 18 month objectives. Its current outlook for the rest of the year suggests a small positive net operating margin.

Given the half year results, WISE expects the NFM’s year to end with its Profit in negative territory and so, we are unable to forecast a year end EPS for this Company. NFM has however made a Net Profit Margin Projection of 4.1 per cent for the year ended 2007, with a Projected EPS of 21 cents. The current Market to Book Ratio for this Company is 0.62. Thus, at the current price of $1.25, WISE recommends a HOLD on this share.

Sreshtha Tewari
WISE Research Team