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BusinessDay 13 April 2018

Friday

Friday 13 April 2018 C002D5556 BUSINESS DAY A7 BD Markets + Finance ‘Providing proprietary research, commentary, analysis and financial news coverage unmatched in today’s market. Published weekly, Markets & Finance provides all the key intelligence you need.’ Dangote Flour Mills enhances value of investment as earnings spike BALA AUGIE Historical Background Dangote Flour Mills Plc commenced penetrations in 1999, as a division of fastest growing conglomerates. Following 8the strategic decision of Dangote Industries Limited to unbundle its various operators, whereas Dangote Flour Mills Plc was incorporated in 2003. The rethinking was completed in January 2006 when the Federal High Court sanctioned a scheme of arrangement where in all the assets, liabilities and undertakings of the erstwhile flour division of Dangote Industries was transferred to Dangote Flour MillsPlc . From an installed capacity of 500 metric tonnes per day, at its Apapa mill, the company has expanded rapidly by opening in quick successions, three flour mills in Kano, Calabar and Ilorin. The Apapa Mill in Lagos, was commissioned in September 1999, while the Kano Mill in June 2001. The Calabar Flour Mill was commissioned in July2002. The company currently has twelve million shares valued at N12.0 billion, with a fully paid up capital of N2.50 billion while total shareholders’ fund stood at N37.45 billion as at December 2017. The mills are ideally located for the servicing of the various and diverse geographical markets, with the Lagos (Apapa) and the Calabar located within ports for easy facilitation of wheat imports through state-of-art ship off- loading equipment . The company recently released its audited results for the year ended December 31, 2017; showing in created revenue when compared with the corresponding period of 2016. There was an increase in gross profit, which means the company has effectively managed direct costs attributable to projects. Dangote Flour Mills has been recording stellar performance after re-acquiring the company from South Africa consumer goods giant, Tiger Brand Plc. Capital injection Aliko Dangote from the owner of the business help spur the consumer goods giant to growth. With this impressive performance, investors should expect to make good returns from Dangote Flour Mills. Increase in gross profit bouye by revenue growth The company recorded an increase of 18.60 percent in revenue to N125.44 billion in December 2017 from N105.70 billion as at December 2016; driven by 31.97 percent increase in revenue from flour to N107.81 billion. The growth at the top line can also be attributed to the company’s marketing and distribution strategies and its ability to harness the resources at its disposal. Cost of sales was up 18.31 percent to N96.01 billion in the period under review from N81.15 billion as at December 2016. The higher production costs were due to volatility in the price of wheat at the international market, surging energy costs and the devaluation of the currency. Gross profit increased by 9.20 percent to 29.43 percent to N29.46 billon in the period under review from N26.93 billion the previous year. In other words, the company is efficient in managing direct costs attributable to projects. Increase in profits, thanks to gains from sale of assets For the year ended December 2017, profit before tax increased by 17.80 percent to N22.43 billion from N19.04 billion the previous year. The company realised N3.56 billion from the sale of assets, which helped underpin pre-tax profit. Profit after tax spiked by 43.16 percent to N15.12 billion in December 2017 from N10.56 billion the previous year. Distribution and administrative expenses were up 28.73 percent to N12.05 billion in the period under review from N9.36 billion the previous year. Finance costs were up 1.42 percent to N2.84 billion in December 2017 from N2.80 billion as at December 2016. Short term borrowings declined by 79.04 percent to N544.90 million in December 2017 from N2.60 billion as at December 2016. Times interest coverage ratio stood at 15.33 times of operating profit, which means the consumer goods giant can pay interest expense. Inventories surged by 162.89 percent to N28.34 billion in the period under review as against N10.78 billion as at December 2016. Trade and other receivables reduced slightly by 4.20 percent to N9 billion in the period under review from N9.40 billion the previous year. Trade and other payable increased slightly by 3.34 percent to N16.78 billion in December 2017 from N16.24 billion as at December 2016. Total borrowings were up 92.16 percent to N69.62 billion in December 2017 from N36.23 billion the previous year. DFM has turned each of invested cash in sales in generating higher profit as net profit margins increased to 12.11 percent in December 2017 from 11.61 percent as at December 2016. Dangote Flour Mills, others donate N70m threshers to wheat farmers Dangote Flour Mills and other flour millers donated 50 units of multi-crop thresher machine worth N70 million to wheat farmers to underpin Nigeria’s self-sufficiency in wheat production. Thabo Mabe, Managing Director and Chief Executive Director of Dangote Flour Mills of Nigeria, made the disclosure at the presentation of the equipment in Lagos. Mabe said that the new machine will help reduce costs and improve yields, hence increasing the amount of yields farmers get per hectare of land. He added that the yields will go up and costs will come down. “We are working assiduously to ensure that Nigeria attains self-sufficiency in wheat production. Our company has bought about 3000 tonnes of wheat from local farmers. We need to make sure that we get local wheat for bread spaghetti and bread,” said Mabe. John Coumantaros, the Chairman, Flour Milling Association of Nigeria (FMAN), represented by Paul Gbededo, Group Managing Director, Flour Mills Nigeria Ltd., said that the presentation was a demonstration of the association’s commitment to continuously support wheat farmers and Federal Government’s agriculture promotion agenda. “There is no gainsaying that self-sufficiency in the production of wheat in Nigeria will have an unprecedented impact on the Nigerian economy through attainment of food security, poverty reduction and of course, save much needed foreign exchange,” he said. Coumantaros said that the association signed an MoU with Wheat Farmers Association of Nigeria in 2016 to purchase all available wheat grain produced by farmers in line with agreed quality parameters and prevailing market prices. “In 2017, FMAN fulfilled its promise by purchasing over 2,400 metric tons of wheat valued at N469 million. “In 2018, even before the start of harvest, we have purchased over 1600 metric tons of wheat valued at N237 million. BD MARKETS + FINANCE (Business Team lead: PATRICK ATUANYA - Analysts: BALA AUGIE and LOLADE AKINMURELE)

A8 BUSINESS DAY C002D5556 Friday 13 April 2018

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