MON, APRIL 01 2019-theG&BJournal-Dangote Flour Mills, the consumer goods firm in Nigeria, has posted its first loss in at least 4 years as sluggish economic growth and decrepit infrastructure increased costs and cut demand for its brands.
The company posted a loss of N1.15 billion for the year ended December 2018 compared with a profit of N15.12 billion a year earlier.
The floundering performance of the Dangote Flour Mills is due to weak consumer spending, double taxation, and menacing gridlock at the Apapa Ports.
Revenue dropped by 9.33 percent to N112.34 billion as at December 2018 while margins have been battered down by rising cost of production.
Recent data by the International Monetary Fund (IMF) shows that Nigerians are getting poorer as 87 million people live below $1.98 a day. This means consumers wallets are squeezed and cannot afford regular consumer products. This is despite the expansion in gross domestic product (GDP) by 2.38 percent in the fourth quarter of 2018.
Indeed the economic debacle has taken its toll on Dangote Flour Mills reflected on the company’s increased spending on input costs into each unit of products.
Cost of sales ratio increased to 90.98 percent in December 2018 from 76.23 percent as at December 2017 while cost of sales or input cost spiked by 7.39 percent, albeit lower than the 13.10 percent February inflation figure.
The poor result suggests that Dangote could be exposed to huge financial risk as operating profit can no longer cover interest expense. Times coverage ratio stood at 0.11 times earnings in the period under review as against 0.97 times earnings as at December 2017.
When a company’s interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable.
The loss is the first Dangote Flour Mills has recorded since its owner and Africa’s richest man Aliko Dangote repurchased the consumer goods giant from South Africa Food firm, Tiger Brand Consumer Goods of Nigeria (TBCG) in 2015.
Capital injection by the billionaire owner helped the company turn a profit in 2016, but the harsh and unpredictable macroeconomic environment has soured the growth momentum.
For instance, profit margins have been beaten down due to rising cost and a reduction in sales.
Dangote Flour’s gross profit margin fell to 10.24 percent in December 2018 from 29.62 percent the previous year while operating profit margin otherwise known as earnings before interest and taxation (EBIDTA) margins reduced to 0.35 percent in the period under review as against 13.25 percent the previous year.
The flour miller’s shares shed 10.20 percent to close at N9.80 as of 2:00 pm Lagos time today, valuing it at N46 billion.
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