Flour Mills Nigeria’s stellar performance validates growth strategy

For the year three months ended March 2017, the company financial results showed impressive performance as it maintained a strong profit position amid an economic downturn.

With the return of Dangote Industries Limited as the majority core investor, new capital injection, reconstituted board and a new management team, Dangote Flour Mills (DFM) is now one of the most-sought after equities on the Nigerian stock market.

Dangote Group had in 2012 sold 63.35 per cent of its equity stake in Dangote Floor Mills to Tiger Branded Consumer Goods Plc in a 181.9 million dollar deal.

In February 2016, Dangote Group reacquired 65.6 per cent majority equity stake in the former Dangote Flour Mills Plc, now rebranded Tiger Branded Consumer Goods Plc.

 Increased revenue, thanks aggressive market penetration and creative pricing

Revenue increased by 26.40 percent to N29.05 billion in March 2017 2016 as against N25.02 billion as at 15 months ended March 20150; driven by an excellent  distribution, marketing, advertising strategy and creative price increase.

Analysts say consumer goods firms had to increase price of products in order to compensate for high cost of production.

The cumulative sales of consumer goods firms under our coverage was up 39.0 percent to N428.72 billion in the first quarter of the year as against N308.34 billion as at March 2016.

 Gross profit jumped by 4.40 percent despite rising costs

Gross profit increased by 4.40 percent to N6.66 billion in the period under review as against N6.59 billion as the previous year. This is despite an increase in cost of sales by 15.78 percent to N22.18 billion in three months ended March 2017 as against N58.12 billion the previous year.

Consumer goods firms in Africa’s most populous nation have been grappling high cost of raw materials, shortages of gas supply at factory caused by incessant attacks by militants on oil facilities in the oil rich Niger Delta region.

Analysts see a torrid year for these firms in 2017 as the storm may not abate.

“We believe inflationary pressures will continue to weigh heavily on consumer spending while higher input costs that cannot be passed on to consumers will tighten their squeeze on margins,” said analysts at analysts at CSL Research Limited in a recent report to BusinessDay.

 “High levels of competition from established players and, increasingly from cheaper, unbranded substitutes, will limit firms’ abilities to pass on higher input costs to consumers, meaning that margins are likely to be squeezed further in the coming years,’’ said analysts at CSL Research.

 The cumulative cost of sales of  consumer goods names under our coverage  increased by 36.07 percent to N1.03 trillion from N758 billion the previous year.

 The economy of Africa’s second largest oil producer contracted by 1.50 percent the third quarter of year on the back of lower oil price, an uncertainty that undermined consumer purchasing power.

 DFM’s current ratio increased to 1.60 times as at three months ended March 2017, 1.26 times the previous year; lower than the 2.10 times industry average.

 A further breakdown of the company’s short term financial position showed current assets fell by 5.68 percent to N70.15 billion in the period under review from N70.34 billion the previous year.

 The growth in current assets was driven by N9.30 billion in financial assets and a 333.62 percent surge in cash and cash equivalent to N14.15 billion.

 Current liabilities increased by 14.02 percent to N62.18 billion in the period under review from 54.13 billion as at 15 months to March 2015. Trade and other payables increased by 38.17 to N19.15 billion in the period under review compared to N14.12 billion the previous year.

 DFM’s debt to equity ratio stood at 169 percent as at three months to March 2017, which means the company has more debt in its capital structure. Total gross debt increased by 10.10 percent to N45.51 billion as at three Months through March 2017 from N41.16 billion the previous year.

 The consumer goods giant’s interest cover ratio stood at 6.18 times earnings, which means its operating profit, can cover interest expenses.

 Accumulated losses are down 79.52 percent to N9.82 billion in the period under review as against N5.47 billion the previous year; thanks to the capital injection by the new owners of the company.

Historical Background of Dangote Flour Mills

Dangote Flour Mills (DFM) Plc is listed on the Lagos Floor of the Nigerian Stock Exchange (NSE) with the symbol “DANGFLOUR”.

Dangote Flour Mills Plc commenced operations in 1999, as a division of Dangote Industries Limited – one of Nigeria’s largest and fastest growing conglomerates.

Following the strategic decision of DIL to unbundle its various operations, Dangote Flour Mills Plc was incorporated in 2006. The restructuring was completed in January, 2006, when all the assets, liabilities and undertakings of the erstwhile flour division of DIL was transferred to Dangote Flour Mills Plc.

From an initial installed capacity of 500 MT per day at its Apapa mill, Dangote Flour has expanded rapidly by opening, in quick successions, three other flourmills in Kano (2000), Calabar (2001) and Ilorin (2005).

All mills have a combined milling capacity of 4,800MT per day. Dangote Pasta Limited, Dangote Noodles Limited and Dangote Agro Sacks Limited are fully owned subsidiaries of the Dangote Flour Group.

Dangote Flour produces: Wheat Flour; Confectionary Flour; Bread Flour; Pasta Semolina; Alkama .

BALA AUGIE