Flour Power

Nutrimix is ready. When its $300 million investment comes on stream at the Point Lisas Industrial Estate,  National Flour Mills  (NFM) will be to the test. Economics is about supply and demand, and the firm that could supply the best flour at the most affordable price will benefit most from the package that they would be offering consumers. Ronnie Mohammed,  vice president of the  Nutrimix Group of Companies said he is not afraid of challenging NFM for the market. Nutrimix would have as its Chief Miller, Manish Mehrotra, who is on a two- year contract from Bombay, India. He explained that the mill is so modern it could operate on a computer switch, controlling operations on the five floors. He said, “If anything goes wrong on one floor an alarm would go off and all that would be necessary is to concentrate on the main switch to get things back to normalcy.

“All the equipment and machinery were brought in from Switzerland,” Mehrotra said, “making it one of the most modern and state-of-the-art plants.” The mill would be producing 500 tonnes of flour per day, and if they make substantial inroads on the local market, expansion work would be immediately done to increase production to 800 tonnes per day. Mohammed said the company, which also has a large share of the local poultry market, took the crucial decision three years ago to set up shop at the Pt Lisas Industrial Estate, because of its  cargo handling facilities and transportation of raw materials to the factory. Mohammed said that they made a study of the world wheat and flour markets before embarking on the project. Mehrotra said that nothing would go to waste at the Flour Mill, as Nutrimix would be supplying feed for dairy animals as well as ruminants. Mohammed said, “When we do come on stream we will be supplying the market with top of the line products in four brands — all purpose flour, bakers’ flour, cake flour and whole wheat flour.

What Nutrimix would have to initiate early is channels of distribution for their product where existing firms have exclusive control and further they should be patently aware of such firms building up business connections that give them a strategic advantage over new firms, and may enable them to smother competition , who although more efficient, have difficulty in gaining a foothold in the market. To start the mill rolling, some 7,500 tonnes of wheat came in from the US last week for the Nutrimix Plant, apart from which there were 2,100 tonnes of corn; and 1,500 tonnes of premix; totalling 11,100 tonnes altogether. The six metal sheet silos standing majestically by the side of the plant are 33 metres tall and they will each house 3,000 tonnes of grain with flour.

NFM blows hole in market expectations
National Flour Mills Half Year Results as at June 30, 2004

National Flour Mills (NFM) half year results were generally below the market’s expectations. They had a modest increase in turnover from $277.736 in 2003 to $320.402 in 2004 representing a change of $42.666 million (an increase of 15.36 percent).  On the other hand, cost of sales increased 20.58 percent undoubtedly leading to a decrease in gross profit of 10.07 percent as profit fell from $47.267 million in 2003 to 42.209 million in 2004.  As a result operating profit margin fell 3.74 per cent from 17.01 percent in 2003 to 13.27 percent in 2004.  This decrease was due to NFM’s absorption of increasing commodity prices which was not passed on to consumers. NFM suffered an increase in operating expenses leading to a drop in net profit before taxation from $20.634 million to $14.117 million.  This represented a change of $ 6.517 million or 31.58 percent.  Taxation decreased 49.25 percent but did not alter the net profit after taxation which still fell $3.469 from $14.445 million in 2003 to $10.976 million in 2004, a negative percentage change of 24.02.

The effect of absorbing increasing commodity prices ultimately affected NFM’s earnings per share bringing it down to 9 cents compared to 12 cents for the same period last year, a decrease of 0.25 percent. Dividend per share remained flat with NFM paying out the same dividend of 7 cents as they did for the similar period in 2003. Recent price increases for some of NFM’s products could leave the company vulnerable to competition and substitute products.  This may negate the potential benefits of their new flour mill facilities now under construction. In our estimation NFM would do well to match last year’s performance and we therefore expect earnings and dividends to remain. Among the shares that lost value on the stock market last week was NFM. The share price fell 6.67 percent to close at $2.80 per share.  Following was NEL (National Enterprises Limited) which fell 3.55 percent to end at $9.50 and, thirdly was JMMB (Jamaica Money Market Brokers) closing at $1.80, a decrease of 2.17 percent.

Financial data analysed  West Indies Stockbrokers Limited. Expressions of opinion herein are subject to change without notice. WISE is a subsidiary of RBTT Financial Holdings Limited West Indies Stockbrokers Limited, 23a Chacon Street, Port-of-Spain, Trinidad (868) 623-4861 Fax (868)-627-5002 e-mail: wise@carib-link.net. Member of the Trinidad and Tobago Stock Exchange Ltd.