Dangote Flour Mills: Another year of exceptional growth

Dangote Flour Mills is showing an operating strength recharged to grow revenue and profit above the 15-month records of the preceding year. The company’s third quarter report for the 2017 financial year shows exceptional growths in revenue and profit. The ability to push sales has added a new momentum to the company’s operations for the second year.

Renewed earnings capacity for the second year is compensating for the years of sustained losses that ended in 2015. The company made a big return to profit in 2016 in a 15-month financial year that ended in December. The impressive earnings growth at the end of the third quarter is a strong indicator that the return to profit last year didn’t happen from a windfall but an outcome of a new cost-income structure with an enlarged room for value creation.

The company has successfully restructured its operations, taming costs and strengthening revenue, thereby stretching out margins and reinforcing profit capacity. The company’s third quarter trading ended with a turnover of N100.28 billion, which is more than double the N49.85 billion turnover it posted in the third quarter of the preceding financial year.

Based on the third quarter figure, sales revenue projection is revised upward from the initial figure of N120 billion to N135 billion for Dangote Flour Mills at the end of 2017. This will be an increase of about 28% over the 15-month turnover figure of N105.76 billion in 2016. The ability to push sales that high is a major accomplishment of the company’s recent restructuring exercise.

Cost of sales remains a challenge, which grew ahead of turnover and claimed an increased share of sales at 77% at the end of the third quarter against 72% in the same period in the prior year. That reduced gross profit margin from 28% to 23% between the two periods.

Distribution/administrative expenses grew by 95% over the period and could not afford the company a reasonable cost saving. The developments that lifted profit performance include a major increase in other income, gain on sale of assets and a leap in interest income.

With the new strength in earnings growth and only a slight increase in finance expenses, Dangote Flour Mills has stretched out profit margin and improved profit capacity. Net profit margin has improved from 5.7% to about 13% over the review period.

After tax profit amounted to N13.05 billion for Dangote Flour Mills at the end of the third quarter. This is an outstanding growth from N2.84 billion the company reported in the same period in 2016. Improving revenue and moderating cost profiles explain the company’s increased profit capacity.

The full year profit outlook has improved significantly from the first quarter-based forecast. After tax profit is revised upward from N11 billion to N17 billion for Dangote Flour Mills at the end of 2017. This will be a rise of over 60% over the 15-month profit figure of N10.6 billion the company recorded in 2016.

The company’s cost management success has also registered in the area of interest expenses. Interest income recorded a big leap from about N229 million to N1.58 billion over the review period, resulting in a drop of 49% in net interest expenses.

The company earned N2.55 per share at the end of the third quarter against 57 kobo per share in the same period in 2016. Earnings per share is projected at N3.48 for Dangote Flour Mills at the end of 2017. The company earned N2.12 per share in 2016. The big news for shareholders is that Dangote Flour Mills has succeeded in wiping off accumulated losses that stood at over N12 billion at the end of last year, paving the way for cash dividend payment at the end of this year.