Nigerian millers’ growth dampened by low margins

Two of the most consumed food types in Africa’s most populous and largest economy – Nigeria – are pasta and wheat. The consumption of bread and pasta called spaghetti cuts across all income class.

Additionally, wheat being a composite product, is used in the baking and in the confectionary industry.

This explains the combined growth in sales of the four major millers that underpin supply in the country that is Flour Mills of Nigeria plc, Honey Well Flour Mills plc, Northern Nigeria Flour Mills (NNFM) and Dangote Flour Mills plc.

The cumulative revenue of the four millers based on their 2013 full year results rose by 10 percent to N427.34bn from N389.14bn in the preceding year.

Based on BusinessDay analysis, the revenue (N427.34bn) figure is 0.53 percent of Nigeria’s N80.22trn GDP.

However, despite the double digit growth of these firms at the top line level, the harsh and unpredictable business environment, and mostly imported inputs is ballooning production cost and also slowing profits.

The cumulative net income for the four firms shrank by 25.01 percent to N4.45bn from N5.95bn in the preceding year as huge costs pressures the bottom line.

Consequently, average industry cost margin was as high as 88 percent while cost of sales increased by 8 percent to N370.98bn.

Wheat, which is mostly imported from outside the country, is susceptible to exchange rate volatility that could soar material cost thus further swelling cost of production.

It should be noted that the security challenges in the north hampered NNFM and Dangote FM from expanding their share of the market

Since the acquisition of majority stake in Dangote Flour mills by Tiger brand, a South Africa food giant, the Nigeria miller has been recording recurring loses.

Tiger said in May that it will impair Dangote FM by 849m rand ($80m), half its investment due to under-performance.

The Nigeria economy is becoming more robust as a result of burgeoning middle class combined with a population of 170m which analysts say will spur growth of the millers.

PATRICK ATUANYA & BALA AUGIE