Flourmills Nigeria Plc 40 Billion Naira Rights Issue

Flourmills of Nigeria Plc Opened its Rights Issue on 15th January 2018 which will run through 21^st February 2018.

Principal activities

The Group is primarily engaged in flour milling, production of pasta, noodles, edible oil and refined sugar, production of livestock feeds, farming and other agro-allied activities, distribution and sales of fertilizer, manufacturing and marketing of laminated woven polypropylene sacks and flexible packaging materials, operation of terminals A and B at the Apapa Port, customs clearing, forwarding agents, shipping agents and logistics.

Flourmills of Nigeria Plc Rights Issue of 1,476,142,418 Ordinary Shares of 50kobo Each at ₦27.00 Per Share

Issue Price N27.00

Opening Date: 15^th January 2018

Closing Date 21^st February 2018

Underwriting status: Nil

Purpose of the Issue:

The Rights Issue is being undertaken as part of the long-term plan to strategically position FMN for sustainable growth. The Rights Issue will enable FMN optimise its balance sheet, repay part of its existing debt obligations, reduce its finance costs and provide working capital support.

Use of Proceeds:

The  net  issue  proceeds  estimated  at  N=39,171,345,502  (after deducting issue costs of N=684,499,784 representing 1.72% of the Issue) will be applied as shown below:

 Ø Repayment of overdraft facilities

Ø Repayment of short term loans

Ø Working Capital

The fund would be applied as follows assuming full subscription:

· 30% Repayment of overdraft facility

· 45% Repayment of short term loan

· 25% Working Capital

Consolidated Financial Summary:

-------------------------->N=’millions <-----------------------------
Unaudited 6 months ended 30 September		------------>Audited year ended 31 March<--------------
	2017	2017	2016	2015
Revenue	298,443	524,464	342,586	308,757
Profit before taxation	13,477	10,473	11,489	7,725
Profit after taxation	9,356	8,836	14,420	8,463
Retained earnings	66,136	60,451	54,901	45,967
Share capital	1,312	1,312	1,312	1,312
Equity	107,833	102,544	95,766	87,410
Total assets	405,570	482,603	345,348	343,261
Earnings per share (Naira)	3.17	3.03	5.57	3.45

INDEBTEDNESS

As at 30 September 2017, the Company had outstanding indebtedness of N=147.2 billion, which included:

N=29.8 billion from loan facilities obtained from the CBN / BOI Power and Aviation Intervention Fund in different tranches at fixed interest rates between 7% and 10% per annum;

          N=19.0 billion from loan facilities obtained from the CBN Commercial Agricultural Credit Scheme at an interest rate of 9% per annum;

N=6.3  billion  Real  Sector  Support  Facility obtained  from  loan  facility from  CBN  at  an annual interest rate of 9%;

N=29.4 billion from Commercial Paper notes issued at interest rates between 19% and 23.75%;

56.8 billion from other term loan facilities at an interest rates between 13% and 25%; and

6.0 billion from loan facilities obtained from commercial banks at interest rates between 12.5% and 16.5%.

Benefit to Shareholders.

· The Rights is currently being offered at a discount of ₦27.00 .i.e 11% of the current market price of ₦30.00.

· The payment of the debt would reduce the interest burden of the company up to an estimated 19.95%, and in Naira terms translate to ₦6,490,545,690.75. This would improve earnings per share (EPS) by equivalent percentage or more and it is assumed that the probability of paying out good dividend enhanced compared to the last two years.

Estimated Success Rate

Excelsior shipping company limited own 52.18% of issued and fully paid-up share capital of the Company. We belief that Excelsior would take up its Rights. This translate to a success rate of 52.18% without other minority Share Holders going by the analysis of the pre and post Issue Shareholding structure below: 

1. SHAREHOLDING STRUCTURE

Pre-Issue

As at 31 March 2017, FMN’s issued share capital of 2,624,253,188 Ordinary Shares of 50 kobo each was beneficially held as follows:

Shareholder	Ordinary Shares held	%
Excelsior Shipping Company Limited	1,369,231,166	52.18
Others	1,255,022,022	47.82
	2,624,253,188	100.00

Post-Issue

It is expected that on completion of the Issue, if all shareholders take up their rights in full, the Company’s paid-up share capital should increase to  N=2,050,197,803 comprising 4,100,395,606 Ordinary Shares of 50 kobo each, to be beneficially held as follows:

Shareholder	Ordinary Shares held	%
Excelsior Shipping Company Limited	2,139,586,427	52.18
Others	1,960,809,179	47.82
	4,100,395,606	100.00

The beneficial owner of Excelsior Shipping Company Limited is a trust established by the late Mr George S. Coumantaros. We belief the Trust would want to keep the Legacy of the owner.

Market Capitalisation @ Issue Price ₦70,854,836,076.00 (Pre-Issue)

Share Outstanding Pre-Issue 2,624,253,188

Market Capitalisation @ Issue Price ₦110,710,681,362.00 (Post-Issue)

Share Outstanding Post-Issue 4,100,395,606

Three Years Dividend History

Year             Amount N
2017                           1.00
2016                           1.00
2015                           2.10

Facts of the Issue

Ø  The net proceed of the issue is 55% of the Market Capitalization pre-issue

Ø  The Rights Issue of 1,476,142,418 new Ordinary Shares is 36% of the Share Capital

Note:

Looking at the time table of the offer, it is clear that the proceeds of the offer may not hit the Account of Flourmills this current Financial Year, since their year end is March. However, there might be an element of surprise since they indicated on the Rights Circular that the part payment for debt obligation would be executed immediately.

If they achieve this, they would have improve their EPS by 22% if they maintained the half year performance all through the year.

 Remarks

Going by the array of subsidiaries paraded by flourmills of whom are leaders in their respective categories, and the restructuring exercise embark upon in the last two years, of which the result had started impacting the company positively in terms of bottom line. We expect flourmills to be among the stocks that would drive the All Share Index (ASI) in 2018. Although it had started a little slow, December, 31^st 2018 is still a long time from now.

Call your Broker!!!