Honeywell Flour Mills faces mounting operational pressure despite higher 2026 profit

HONEYWELL Flour Mills recorded improved profit in its 2026 financial year, but a closer examination of the company’s financial statements shows rising operational pressure, growing liabilities and increasing dependence on financing income to sustain earnings growth, Annual report and consolidated and separate financial statements for the year ended 31 March 2026

The company’s revenue declined to N360.85 billion in 2026 from N373.51 billion in 2025, reflecting weaker sales momentum despite Nigeria’s inflation-driven consumer market where prices of food products have continued to rise sharply.

Although the decline in revenue was relatively modest, it signals that Honeywell struggled to expand volumes in an economy weighed down by weak consumer purchasing power, high inflation and rising production costs.

Cost of sales also fell during the year, helping gross profit to rise slightly to N36.43 billion from N32.25 billion. On the surface, this suggests some improvement in production efficiency and cost management.

However, deeper analysis of the accounts shows that much of the pressure merely shifted further down the income statement.

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Higher costs

Honeywell’s selling and distribution expenses surged dramatically to N11.38 billion from N4.58 billion in the previous year, representing one of the sharpest cost increases in the accounts.

The rise likely reflects escalating transportation, logistics and energy expenses across Nigeria’s manufacturing sector following fuel subsidy removal and naira depreciation.

The spike in distribution costs significantly weakened operational performance and eroded gains made at the gross profit level.

As a result, operating profit fell to N16.58 billion from N18.08 billion, indicating that Honeywell’s core manufacturing and trading operations became less profitable during the year despite only a marginal decline in revenue.

Profit levels

The company’s final profit growth was largely supported by financing activities rather than stronger operations.

Finance income increased to N9.22 billion from N8.54 billion, while finance costs declined to N3.9 billion from N5.43 billion.

The lower finance costs suggest the company reduced interest pressure from borrowings, while stronger finance income boosted earnings considerably.

This helped profit before tax rise marginally to N21.9 billion from N21.2 billion, while profit after tax increased to N16.49 billion from N14.59 billion.

The figures suggest that Honeywell relied more heavily on treasury management and financing-related income to support profitability at a time when its operational margins were weakening.

Related party lending

One of the most striking aspects of the financial statements was the company’s aggressive expansion in related-party lending activities. Related parties are people or entities that share a preexisting connection, such as a family tie or shared ownership. Examples are directors and their relatives, including subsidiaries.

Honeywell granted N152.97 billion in loans to related parties during the year, although N64.04 billion was repaid. By year-end, short-term loan receivables stood at N40.56 billion.

The company also recorded impairment charges on loan receivables and related-party receivables, raising concerns about potential credit risk and recoverability challenges tied to these exposures.

The balance sheet expanded significantly during the year, with total assets rising to N216.71 billion from N167.45 billion.

A substantial part of this increase came from investment in property, plant and equipment, which jumped sharply after the company spent N33.57 billion on capital projects compared to only N2.52 billion in the previous year.

The aggressive capital expenditure could indicate expansion plans, modernisation efforts or capacity upgrades aimed at long-term growth.

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However, it also introduces execution and funding risks at a period when operating profitability is already under pressure.

Rising liabilities

Honeywell’s liabilities also climbed sharply. Total liabilities rose to N162.78 billion from N130 billion, largely driven by a jump in trade and other payables, which increased to N97.99 billion.

The sharp rise in obligations suggests growing working capital pressure and heavier dependence on suppliers and creditors to support operations.

Despite this, shareholders’ funds improved strongly to N53.93 billion from N37.45 billion due mainly to higher retained earnings.

There were some positive indicators within the accounts. Inventory levels dropped significantly from N48.12 billion to N31.46 billion, suggesting improved inventory turnover and stronger stock management.

Operating cash flow also remained robust, with the company generating N126.56 billion in net cash from operations during the year.

Cash balances nearly doubled to N9.81 billion from N5.26 billion, providing the company with improved liquidity.

Overall, Honeywell Flour Mills remained profitable and cash generative in 2026, but the numbers reveal growing stress beneath the surface.

Weak revenue growth, rising operating costs, expanding liabilities and increasing exposure to related-party financing activities all point to a business facing mounting operational and financial pressure despite reporting higher headline profit.

The Nigerian flour milling sector is dominated by major industrial conglomerates including Flour Mills of Nigeria Plc, Honeywell, Olam International, and BUA Foods. Together, they control over 75 percent of the market share. The milling sector is capital-intensive and historically highly sensitive to exchange rate fluctuations, which strain profit margins.