DANGOTE FLOUR LOSES N1BN

Dangote Flour Mills, DFM, Plc has recorded a pre-tax and after tax losses of N2 billion and N1 billion respectively for the half year period ended June 30, 2013.


According to FBN Capital, the market sentiment for the result is likely to be negative, even as the company's sales up by nine percent on quarter-on-quarter basis.

According to analysis from FBN Capital, "Although Dangote Flour's half year (Q2) sales of N15.3billion were up marginally by 3.3 percent Year-on-Year (y/y), a gross margin contraction of 1,118 basis points (bps) to 7.2 percent resulted in gross profit declining 60 percent Year-on-Year (y/y).

A tax credit of N1.2billion reduced DFM's net loss after tax to N1.0billion. On a sequential basis, sales were up by nine percent quarter-on-quarter (q/q). With this set of results, DFM has now reported six consecutive quarters of losses. Relative to our unrevised estimates, sales were 19 percent below our N18.9 billion forecast; we were also looking for a profit after tax of N267million."

Furthermore, FBN Capital noted that a combination of factors, including Operating Expenses (opex) growth of 49 percent y/y, a 96 percent y/y increase in net interest expense and an impairment charge of N293 million all weighed on the bottom line and resulted in a pre-tax loss of N2.0billion.

Continuing, the FBN Capital stated "Pending management's comments on the results and using Flour Mills of Nigeria (FMN) as a read-across, we believe that one of the factors responsible for the gross margin contraction was higher import duties on wheat grain (a key input for flour millers) from five percent to 20 percent. We suspect that the 49 percent y/y rise in opex was driven by a spike in haulage costs, particularly to the northern region of the country, which accounts for about 30 percent of sales. At this point, due to the company's limited communication with analysts, we cannot comment in detail on the asset impairment charges.

However, Tiger Brands management had disclosed that DFM may not become accretive in the near-term. As such, we would not be surprised to see more losses reflected in the company's next set of quarterly results."