The surge in demand for healthy diet (pasta and wheat) by Nigerians, increased production capacity of flour millers, and rising population have helped to spike milling companies’ revenues.
The four major players quoted on the floor of the Nigerian Stock Exchange (NSE) are Flour Mills of Nigeria plc (FLOURMIL), Dangote Flour Mills plc (DANGFLOU), Northern Nigeria Flour Mills plc (NNFM) and Honeywell Nigeria plc (HONYFLOU).
In the nine months through September 2013, they collectively grew revenues by 14 percent year-on-year (y/y) to N319.6 billion, up from N279.16 billion recorded in 2012.
Flour is a composite staple product and as such reinforces the low-income elasticity of demand for the products of flour millers, said Abiola Rasaq, team leader, UBA Capital plc, a financial and investment services group, in an e-mail reply to BusinessDay’s questions.
“The need to create and penetrate the markets has made some of these firms increase production capacity, which at the moment is slightly above demand. More distribution networks are springing up,” said Rasaq.
Some industry experts say that the double-digit top-line growth over the last three years of the market leader (Flour Mills Nigeria) is underpinned by the contribution from investment in pasta and agro-allied businesses.
However, Northern Nigeria Flour Mills and Dangote Flour Mills had dwindling revenues which were down by 6 percent and 4 percent to N29.96 billion and N8.41 billion, respectively.
The two companies have been having challenges with operations and sales in the northern region due to the ongoing security challenges, said Ronke Akinsola, a research analyst with Meristem Securities Limited, in a telephone interview, adding: “Competition from Flour Mills and Honeywell may have been partly responsible for lower revenue.”
The revenue growth of 14 percent has, however, not reflected on bottom-line performances as these companies’ Q3 2013 combined profit before tax (PBT) fell by 74 percent to N2 .87 billion, from N10.88 billion recorded in 2012.
A cross section of economists interviewed by BusinessDay agreed that one general factor that suppressed the profitability of the flour millers was increased spending on marketing and overall distribution channel.
“The acquisition of DANGFLOU by Tiger Brands, a South Africa-based company, made the Nigeria company incur huge restructuring costs, thus crimping profits over time. The synergy between DANGFLOU and other companies acquired by Tiger (Deli Foods Limited) will enable the Nigeria miller break even by the end of 2014,” said Rasaq.
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.
“Dangote Flour Mills is facing a significant hit because of less diversification and the increase in tariffs in 2012. This has been a major drag and has pressured production margin,” said another analyst who spoke on condition of anonymity.
FLOURMIL, DANGFLOU, NNFM, and HONYFLOU on March 5, 2014 had their share prices close at N78, N9.50, N22, and N4, respectively, on the floor of the Nigerian Stock Exchange.
By: BALA AUGIE
