Dangote Flour Mills beset by Stiff completion from peer rivals, soaring input costs and security challenges such as the Boko Haram Insurgency has been recording recurring operational inefficiency analysts say.
The company’s revenues in the first quarter of December 2014 shrank by 13.5 percent to N8.36 billion from N9.67 billion corresponding period of 2012.
Dangote FM is facing significant hit because its less diversified compared to other companies in the same industry according to Rasaq Abiola , lead analyst at UBA Capital, a Lagos based Financial and Investment Firm, in a telephone interview with BusinessDay.
“The tariff on wheat in 2012 has been a major drag that has pressured the production margin,” said Abiola.
“It also lost market share to the intensifying competition in the pasta and noodles segments of the market.”
Cost of sales margin were high at 94.5 percent current period and it also surged to 101 percent which explains the lower gross profits of 459.08 billion same period.
Operational loss before tax reduced by 62.3 percent to N7.90 billion from N9.80 billion Q1’14.
The loss was partly attributable to the N777 million legacy statutory costs as well as higher finance cost according to an industry analyst who craved anonymity.
“Higher distribution cost in the North and probable cost associated to the sale of Dangote Agrosack may have pressured the bottom-line,” he said.
The operational performance of the company was further exacerbated as operational expenses soared by 149.1 percent to N2.65 billion, while operating expenses margin jumped to 31.71 percent from 103.91 hence hurting profits.
Tiger Brands, South Africa’s largest food company, after approval from Nigeria’s Securities and Exchange Commission (SEC), paid N30.1 billion ($190 million) for a majority stake in Dangote Flour from Dangote Industries Ltd. owned by billionaire Aliko Dangote, Africa’s richest man.
Tiger consummated the deal with a payment of N9.50 a share in cash on October 1, 2012 to acquire 63.35 percent of the flour mills business, the Johannesburg-based company said in a statement released that same year.
Dangote Flour has 30 percent market share in flour and 40 percent in pasta in Nigeria.
BALA AUGIE
