Fan Milk Plc (“FML”) released its unaudited FY2024 financial results on 31 January 2025, reporting an impressive profit outturn, albeit marginally below our estimate by 4.5%. The large ice cream producer churned out a net profit of GHS 54.2mn, representing a 125.9% y/y improvement. The profit outturn was mainly underpinned by a 24.5% y/y increase in revenue to GHS 683.8mn and a 54.1% y/y plunge in finance cost to GHS 12.5mn. According to management the growth in revenue for FY2024 was capped by an 18.0% y/y drop in export sales. However, the improved gross margin was attributed to material price negotiation, better product mix, product availability and smart sales promotions. We believe the negotiation on material prices helped to cap the growth in input cost with support for gross margin.

Operating expense increased by 25.6% y/y to GHS 182.4mn. In our view, the surge in operational expenses was primarily driven by elevated energy prices, increased utility costs, spending on promotions and advertising, and significant net exchange losses. Despite the increase in operating expense, the growth in topline, plunge in finance cost and containment of input cost collectively offset the rise in OPEX. Overall, we are impressed by the significant surge in earnings, mainly supported by the focus on productivity initiatives and topline growth. The 18.0% y/y decline in export sales raises our concern about sustaining the revenue growth momentum, and we await further clarity on management’s initiatives to address these challenges effectively in the short to medium term.

Key risks to valuation
A slower-than-expected decline in inflation, FX volatility, elevated interest rates, utility tariff hikes, higher energy prices, spike in the price of skimmed powder, intense competition and proposed tax reforms by the new Ghanaian administration could impact FML’s financial performance.