Nigeria Corporate Analysis | Public Rating
Dufil Prima Foods PLC Nigeria Corporate Analysis May 2018
Financial data:
(USD’m comparative)
31/12/16 31/12/17
N/USD (avg.) 252.7 305.3
N/USD (close) 304.5 305.5
Total assets 263.8 363.9
Total debt 162.3 213.7
Total capital 59.5 80.7
Cash & equiv. 16.3 17.9
Turnover 477.8 562.6
EBITDA 85.3 113.8
NPAT 32.0 73.6
Op. cash flow (14.4) 38.6
Market share: noodles (75%),
Vegetable oil (12-15%)
Market cap n.a
Dufil Prima Foods Plc (“Dufil”, “group”,
“the Company”)
Rating history: Initial rating (June 2016)
Long term: A-(NG)
Short term: A2(NG)
N10bn Series 1 Bond (Oct. 2017): A-(NG)
Rating Outlook: Stable
Last rating (April 2017)
Long term: A-(NG)
Short term: A2(NG)
Rating outlook: Positive
Rating methodologies/research Criteria for rating Corporate entities
(updated February, 2017)
Dufil Prima Foods PLC Issuer rating
report, 2016-2017
Glossary of terms/ratios, February 2017
GCR contacts: Primary Analyst:
Kunle Ogundijo
Committee Chairperson:
Dave King
Analyst location: Lagos, Nigeria
+23 41 904 9462
Website: http://www.globalratings.com.ng
Summary rating rationale
Dufil’s dominant presence in the packaged food segment of the economy is
supported by a long operational track record, strong shareholder support,
ongoing expansion of production capacity (including acquisition of smaller
competitors) and backwards integration. This underlies its superior competitive
strength and strong brand equity, which has seen most of its products enjoy
widespread acceptance across the country, with strong sales demonstrating
demand inelasticity to upward prices movement.
Over the review period, revenue growth has been driven by a combination of
expansion in production capacity, higher traded volumes, upward price
adjustments, and more recently, business acquisitions. This equated to a five-
year Compound Annual Growth Rate (“CAGR”) of 24%, translating to a
period high revenue of N171.8bn in FY17 (FY16: N120.7bn).
The robust growth in revenue in FY17 allowed Dufil to fully absorb much
higher production and administrative costs necessary for the enlarged
operations. Thus, on the back of the firmer earnings, profitability metrics
strengthened, translating to a higher EBITDA margin of 20.2% (FY16:
17.8%), with the operating margins widening to 18.7% (FY16: 15.7%).
Notwithstanding the strong cash generation capacity, liquidity pressure has
been experienced in recent years, largely resulting from increased working
capital requirements, as inventory and related party debtors have more than
doubled over the last three years. The cash position was further depleted by a
large dividend payment of N15.9bn in FY17 (including a N4.7bn payment
from FY16), necessitating additional borrowings to finance the huge capex.
Nonetheless, Dufil operates a favourable cash conversion cycle which should
mitigate any substantial future cash outflow.
Dufil displays an elevated debt profile, underpinned by ongoing capex and
working capital requirements. In this regard, total debt grew by 32% to
N65.3bn at FY17, well above budget of N39.2bn. Although, the issuance of
the Series 1 bonds served to reduce the concentration to short term debt, it still
comprised around two-thirds of total debt. Access to funding is supported by
the strong relationships with several banking counterparties.
Gearing metrics strengthened on the back of the firmer growth in earnings,
with net gearing moderating for a third consecutive year to a period low 243%
at FY17 (FY16: 246%), while net debt to EBITDA declined to 172% (FY!6:
206%) Similarly, firmer operating income resulted in a stronger net interest
cover of 3.3x (FY16: 2.6x). The improved credit protection metrics
demonstrate a strong capacity to absorb higher debt, however, Dufil could find
itself in an over geared position if earnings drop suddenly.
As the Bonds are senior unsecured obligations of the Issuer, and the Bond
programme features a negative pledge, the Series 1 Bonds bear the same rating
as the Issuer, and any change in the rating assigned to the Issuer will directly
affect the Bonds ratings.
Factors that could trigger a rating action may include
Positive change: Successful completion of all ongoing capacity expansion
projects, on time and within budget. With these contributing to margin
enhancement, sustained improvement in gearing metrics, as well as maximising
its superior competitive strength over the medium term.
Negative change: Continued increases in debt, even to fund profitable
expansions/acquisitions, would see gross debt rise above levels congruent with
the current ratings. This risk of high debt may be exacerbated by earnings
underperformance, construction delays and cost overrun, which would constrain
profitability and lead to a rapid deterioration in credit protection metrics
.
Rating class Rating scale Rating Rating Outlook Expiry date Long term National A-(NG)
Positive May 2019 Short term National A2(NG)
N10bn Series 1 Fixed Rate Bond National A-(NG) Positive May 2019
Nigeria Corporate Analysis | Public Rating Page 2
Background and recent developments1
Dufil was incorporated in 2001 to carry on the business
of manufacturing of instant noodles. In 2008, the
Company converted into a public limited company and
became the group holding company with the principal
activities of the subsidiaries being; manufacturing and
marketing of noodles, seasoning, pasta, wheat flour,
packaging material, snacks and oil. Dufil currently
operates from factory locations in Lagos, Ogun, Rivers
and Kaduna States, with its corporate head office
situated in Lagos. There are seven wholly owned
subsidiaries in the group, as contained in Table 1.
Table 1: Dufil Prima Foods PLC
S/N Subsidiary Established Products Factory/Location
1 De United Foods
Industries Limited 1996
Seasoning,
Noodles Ogun and Lagos
2
Insignia Print
Technology LFTZ
Enterprise
2008 Packaging materials
Lekki FTZ, Lagos
3 Pure Flour Mills
Limited 2011
Flour, Snack,
Pasta Rivers
4 Raffles Oil LFTZ Enterprise
2013 Vegetable oil Lekki FTZ, Lagos
5 Northern Noodles Limited
2011 Noodles Kaduna
6
De United Foods
Industries Ghana Limited*
2013 Noodles and
Pasta Accra, Ghana
7 Enriched Pte
Limited* 2017 Procurement Singapore
* Foreign subsidiaries
Dufil is currently one of the most prominent companies
in the flour milling business, as wheat (processed into
flour) is the major input in the production of noodles. It
also has as an increasing presence in the vegetable oil
and snack segment. The Company’s strategic intent has
largely been focused on being the dominant brand in the
noodles’ segment of the food business, this has led to the
expansion of production capacities across geographical
regions. The noticeable developments over the years
have been supported by aggressive marketing and
efficient distribution, which has enhanced brand
acceptance across the country, in the process, creating
strong demand for its products across demographic lines.
Further to this, in a bid to secure the supply chain (and
thus reduce exposure to the vagaries in the operating
environment) and to increase production efficiency, a
policy of backward integration has been implemented.
Thus, through various subsidiaries, Dufil now produces
many of the inputs into its flagship product- noodles.
This has necessitated huge investments in various
production facilities/processes.
In line with the above, an additional 20,000MT was
added to the noodles production line in Ota. The new
line became operational in December 2017, and will
serve the increasing demand in the South-West region,
as well as exports. Similarly, the seasoning blending
capacity at the facility was doubled to 4.8MT per hour,
and 20 new packaging lines were added. However, the
expected installation of the blown film machine in the
1 Readers are advised to refer to previous rating reports for a detailed background.
packaging segment has been delayed, and will only be
completed in July, 2018.
The Singapore based subsidiary is expected to mainly
serve as a procurement arm for imports. This will reduce
associated foreign exchange risks prevalent in Nigeria.
In addition to the wholly owned companies, operating
lease agreements exist with Standards Flour Mills
Limited (Apapa, Lagos State) and Valluembra Flour
Mills Limited (Aba, Abia State) for the use of their
production facilities to augment production and supply
of flour for internal use.
Following the acquisition of Dangote Flour’s noodles
production facility in 2017, in May 2018, Dufil acquired
the noodles production division of May and Baker PLC.
Dufil will continue to trade under the brand name,
Mimee, which commands a 2% market share. This will
serve to further strengthen its dominance in the noodles’
segment. A pasta production facility was also acquired
by the Ghana subsidiary during 2017. This will be
complemented by the construction of a noodles
manufacturing plant in Ghana in the next few months,
which will eliminate the dependence on imported
finished products (noodles) from Nigeria.
Table 2: Capacity Utilisation (in Tons) as at March 2018
Product Installed capacity Production Utilisation (%)
Noodle 348,859 309,644 89
Packaging 9,045 9,045 100
Seasoning 29,918 19,415 65
Flour 126,279 126,279 100
Pasta 67,200 56,099 83
Oil 483,451 158,981 33
Snacks 14,410 13,001 90
Source: Management
The flour and packaging and sections are currently
operating at full capacity, while utilisation is very high
for noodles, pasta and snacks. While this reflects the
continued strong demand for Dufil’s offerings, it also
suggests that further expansionary projects will be
necessary to ensure earnings growth continues. It’s only
in oil that there is excess capacity, with the planned
expansion into this segment being hampered by delays in
acquiring suitable agricultural land (due to some issues
with the host community).
Shareholding and corporate governance
Dufil’s corporate governance framework is in
compliance with the relevant requirements of the
Companies and Allied Matters Act (“CAMA”) and
Securities and Exchange Commission (“SEC”). The size
and composition of the Board of Directors remained
unchanged over the last 12 months, with Company
affairs overseen by two executive directors and five non-
executive directors, including an independent director (a
Nigerian) and the Chairman. In compliance with good
governance principles, the activities of the board are
governed by a charter stipulating its responsibilities,
power and processes. The day to day running of the
company is delegated to the management team, led by
the managing director. The board is made up of seasoned
professionals with several years of experience in
Nigeria Corporate Analysis | Public Rating Page 3
different countries. Some of the directors also hold other
directorships in other international companies.
Table 3: Corporate governance summary
Description Findings
Directors 2 executive
5 non-executive, including an independent
director and the Chairman
Frequency of meetings At least once per annum
Separation of Chairman Yes
Board committee Executive Management, Audit Committee
Internal control and
compliance Yes, reports to the audit committee
External auditor Deloitte and Touche; an unqualified, clean
audit opinion was issued for FY17
Dufil is controlled by two major shareholders, Tolaram
and Salim Groups, each holding a 49% stake. The
remainder is held by a number of local investors.
However, GCR notes that American multinational food-
manufacturing company, Kellogg’s recently (in May,
2018) acquired around 50% stake in Tolaram Africa,
diversifying the ultimate shareholder base. Given the
larger shareholdings, Dufil enjoys strong parental
support.
Industry Overview
The combined impact of changing consumption
preferences, rapidly expanding population and increased
urbanisation have supported the robust growth displayed
in the packaged food sector of the economy over the last
decade. The sector has witnessed significant investments
(local and foreign), underlying the huge demand for a
variety of packaged food items. According to industry
sources, the sector, which is one of the fastest growing in
the economy, is currently worth around N1tn, with the
sustained growth resulting in a 9%2 contribution to Gross
Domestic Product in 2017. Key product categories,
include; dairy, baked goods, cereal, pasta and noodles,
and chilled foods, and it is expected to continue its
upward trend given growing preferences for packaged
foods among the youths.
The sustained upward growth trajectory in the Fast
Moving Consumer Goods (“FMCG”) segment, which
has defied the challenging economic environment, has
been largely attributed to efficient marketing and
distribution strategies by the players, innovation and
increased branding and packaging of offerings, and the
continued ban on the importation of certain food
products, which has encouraged the expansion of local
production. Nevertheless, benefits from local production
are partly moderated by the significant portion of most
raw materials being imported.
Notwithstanding the massive infrastructural deficit
(which serves as a drawback to accelerated growth), the
packaged food sub-sector remains highly competitive
with the major players implementing various strategies
to maintain market share amidst declining margins. Key
locally based companies, include; Dufil, Honeywell,
Flour Mills, WAMCO, Promasidor and Yale, while
major international companies are represented by
2Nigeria Bureau of Statistics
Cadburys, Nestle and Unilever. Other foreign owned
brands maintain their presence through alliances with
Nigerian companies to repackage and/or market their
products in the country, thus lowering the risk of market
entry.
Besides Dufil, other key players in the flour milling
industry include, Flour Mills of Nigeria Plc, Olam
group, Honeywell Flour, and Dangote Flour among
others. Notwithstanding increasing flour milling capacity
(now over 30,000 MT per day), buoyed by the growing
demand for flour based products like bread, pastry and
biscuits, wheat is mainly imported, given the poor
yields. However, in order to improve local yields and
wheat output, the Federal Government and some key
private establishments have invested in research
(through research institutes, universities and private seed
companies) towards developing quality seeds that are
resistant to both heat and flood, are high yielding, and
can mature early. This fits into the government’s
Agricultural Promotion Policy, which aims to half the
amount of wheat imported in 2018.
Furthermore, the CBN has also supported the sector by
providing low interest loans to farmers to encourage
investment in mechanised farming. Accordingly, market
experts anticipate continued concerted efforts to lead to
improved wheat production to around 2m MT by end of
2019.
Table 4: Key industry
Comparatives FY16 (N’m)
Dufil
Dec. 2017
Honeywell
Mar. 2017
FMN
Mar. 2017
Revenue 171,751.8 53,227.9 524,464.4
Op. profit 32,052.9 8,262.8 41,439.9
NPBT 23,166.5 5,469.8 10,472.8
Total Debt 65,274.5 47,468.9 241,605.1
Cash (5,465.2) (7,624.7) (45,018.5)
Net Debt 59,809.2 39,844.2 196,586.6
Equity 24,642.6 52,313.2 94,107.6
Key ratios (%):
Gross margin 29.9 23.9 12.7
Op. margin 18.7 15.5 7.9
Total debt: equity 264.9 90.7 256.7
Net debt: equity 242.7 76.2 208.9
Source: Audited Financials
Earnings diversification
Dufil has a diverse product portfolio, with most enjoying
widespread acceptance among various age groups. Its
product offering is centred on the food segment with
country-wide presence enabled by its relationship with
Multipro Consumer Products Limited (“MCPL”),
serving as the sole distributor Although this creates an
excessive reliance on a single party, Dufil does benefit
from MCPL’s extensive distribution network. Marketing
activities are handled directly by the head office, with
the Company expending a significant portion of turnover
on advertising and promotions that are aimed at growing
market share in the various product.
Dufil has maintained its leading position in the noodles’
segment of the food sector by increasing market
penetration, including acquisition of direct competitors.
According to management, Dufil currently accounts for
c.75% of market share in the noodles’ segment, with
Nigeria Corporate Analysis | Public Rating Page 4
indomie, minimie and the recently acquired Dangote
noodles further strengthening its competitive position.
Furthermore, the Company’s market share is likely to
expand further, as another competitor, mimee was
recently acquired (in May 2018), accounting for 2%
market share.
The noodles’ segment remains a major contributor to
sales and thus revenue. Although, revenue increased by
around one-third in FY17, overall contribution fell
below 70%, following higher contributions from other
product segments. The noodles’ segment has many
flavours, satisfying a diverse range of taste preferences,
thus enabling a rapid growth across demographic lines
and creating a somewhat inelastic demand to price
increases.
Table 5: Revenue
diversification
2015 2016 2017
N’m % N’m % N’m %
Noodles 64,751 62.3 87,767 72.7 117,242 68.3
Flour 6,303 6.1 5,806 4.8 6,878 4.0
Pasta 4,012 3.9 5,668 4.7 6,632 3.9
Packaging 998 1.0 1,662 1.4 1,269 0.7
Palm oil 26,406 25.4 16,971 14.1 31,872 18.6
Snacks 1,424 1.4 2,868 2.4 7,859 4.6
Total 103,894 100 120,741 100 171,752 100
Dufil also ranks as one of the fastest growing companies
in the cooking oil segment, accounting for around 15%
of market shares in the refined category. Lately, efforts
have being concentrated on growing other product
segments, with investments in palm oil plantations and
machinery for the packaging, snack and flour segments
expected to increase in capacity/utilisation over the
medium term, leading to higher revenue contributions.
Although, moderate increases in revenue were reported
in other segments, the overall contribution to revenue
remains small. Dufil continues to implement various
measures to ensure it remains competitive in the market.
Financial performance
A five-year financial synopsis is reflected at the end of
this report, and commentary follows hereafter. Dufil’s
financial statements were compiled in line with
International Financial Reporting Standards (“IFRS”), as
well as the requirements of CAMA and Financial
Reporting Council of Nigeria. The Auditors, Deloitte
and Touche issued unqualified opinions for each of the
five years of audited financial statements.
With the impact of price increment (on products) taken
at the end of 2016, having a full year effect in 2017 and
a combination of increased production capacities and
higher traded volumes, revenue spiked by 42% to a new
high of N171.8bn in FY17 (FY16: N120.7bn). This
equated to a robust five-year CAGR of 24%.
Notwithstanding the sluggish economic activity at the
start of 2017, the robust demand for Dufil’s products
reflected the inroads the Company has made in
expanding the noodle market and entrenching its brands.
Profit margins have remained robust through the review
period, as revenue growth has consistently outpaced
costs. This has been enabled by the benefits of
economies of scale, as well as backwards integration.
Despite fully absorbing a 36% rise in production costs
(largely reflecting the expansion of operations), the gross
margin still registered at a period high 29.9% in FY17
(FY16: 26.9%), almost double the industry average.
In line with the larger operations, consumptive spend
(mainly comprising marketing and administrative
expenses) rose by N5.7bn to N19.3bn. Nevertheless,
operating profit nearly doubled to a high N32.1bn, thus,
widening the operating margin to 18.7% (FY16: 15.7%).
Table 6: Income
statement (N'm) FY16 FY17
FY17
Forecast
%
achieved
Revenue 120,741.0 171,751.8 184,088.9 93.3
Gross Profit 32,467.5 51,362.7 52,714.3 97.4
EBITDA 21,546.7 34,747.3 35,186.1 98.8
Depreciation (2,599.3) (2,694.4) (2,744.4) 98.2
Op. Profit 18,947.4 32,052.9 32,441.7 98.8
Net interest (7,298.5) (9,699.7) (7,049.2) 137.6
Forex loss (4,084.5) (325.7) 0.0 n.a
Other 737.5 1,138.9 0.0 n.a
NPBT 8,301.9 23,166.5 25,392.5 91.2
Key ratios (%) Gross margin 26.9 29.9 28.6 -
EBITDA margin 17.8 20.2 19.1 -
Op. margin 15.7 18.7 17.6 -
Net int. cover (x) 2.6 3.3 4.6 -
The net finance charges rose by a further N2.4bn to
N9.7bn, underlying increased utilisation of debt facilities
for expansion and working capital requirements. At over
N6bn, the outflow emanates from interest payments on
overdrafts and import finance facilities, while interest
income (mainly earned off government grant) remained
negligible at N0.1bn. Notwithstanding this, the impact of
firmer operating income resulted in a higher net interest
cover of 3.3x (FY16: 2.6x), suggesting sufficient
capacity to effectively manage the rising debt profile.
Resulting from the relative Naira stability, the forex
losses on translation/restatement of year-end inventory
and loans was reduced to N0.3bn (FY16: N4.1bn). This
was offset by a N1.1bn receipt from the sale of scrap and
other miscellaneous income. Overall, Dufil reported
NPBT of N23.2bn in FY17, much higher than the
cumulative income reported between FY14-16. After
deducting a tax charge of N0.7bn (FY16: N0.2bn),
NPAT grew by almost 3x to N22.5bn.
Cash flows
In line with the increased scale of the Company, cash
generated by operations almost doubled in FY17,
reaching a period high N37.2bn. With the exception of
FY15, where a small release was reported, Dufil has
reported significant working capital absorptions in all
02468101214161820
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FY13 FY14 FY15 FY16 FY17
%N'm Figure 1: Revenue Vs Total Cost
Revenue Total costs Op. margin (RHS)
Nigeria Corporate Analysis | Public Rating Page 5
years under review, supporting the continuous increase
in production capacity. Since 2011, Dufil has
consistently commissioned new production facilities, or
expanded existing production lines in order to meet
rising demand for its products. As such, an increase in
plant capacity is usually met by higher production
volumes, correspondingly, this scenario also leads to an
increase in debtors, as the sales volumes rise.
Of the N13.4bn absorption reported in FY17 (FY16:
N14.7bn), a substantial N11.6bn derived from trade and
other receivables with the related parties - MCPL (the
sole distributor) accounted for around two-thirds of the
increase, while the remainder was owed by PT Indofood.
Although, Dufil provides a favourable 30-day payment
period to its debtors, the adverse operating environment
had affected MCPL’s capacity to make advanced
payments for goods supplied, leading to substantially
higher level of receivables, when compared to previous
years. This notwithstanding, management indicated that
the bulk of payments are received within the stipulated
timeframe. Similarly, inventory increased by N9.1bn,
reflecting a greater volume of raw material stock
required. Nevertheless, the actual inventory holding
period was reduced to one to two months, compared to
FY16, where the inadequacy of foreign exchange
necessitated holding raw material stock for longer
periods.
Table 7: Working Capital
Schedule (N'm) FY15 FY16 FY17
Accounts Receivable 2,474 (9,945) (11,621)
Inventory (2,686) (5,849) (9,098)
Accounts Payable 1,761 3,619 7,944
Other rec. and prepayments (470) (2,516) (1,295)
Other payables and accruals 293 (43) 620
Net Working Capital (NWC) 1,373 (14,734) (13,450)
Change in NWC (8,668) (13,361) 1,284
Partly moderating the absorption was a release from
creditors of N7.9bn, mainly comprising outstanding
payments to related parties (N5.5bn), with the remainder
comprising accruals (for adverts and promotions), and
some other statutory payments (VAT and WHT).
Typically, the head office is responsible for procurement
and then distributes stock to the various factories, based
on requisitions. Dufil generally enjoys four-five months
payment period on foreign transactions, while receiving
a 30-day term on most local purchases.
Notwithstanding the higher net interest and tax charges,
cash generated from operations registered at N11.8bn
(FY16: N3.6bn outflow). The robust inflow partly
enabled a significant N15.9bn to be paid out to
shareholders (as dividend), translating to a 50% pay-out
ratio on FY17 profit. The payment includes a N4.7bn3
dividend for FY16, while dividends of N7.5bn and
N3.7bn were paid for FY17. While the pay-out ratio has
been high (above 70%) in years of robust profitability,
the dividend payment in FY17 appears unsustainably
larger, particularly, as it completely depleted the
operating cashflow.
3A dividend of N4.73bn was approved by shareholders, however, this was not paid as a
result of the huge cash outflow from operations reported in FY16.
Additional capex amounted to N11.1bn, mainly related
to plant and machinery in the noodles and seasoning
division, as well as some construction work in progress,
land acquisition and improvement work in some
factories. Thus, while the robust cash generated was
sufficient to meet operational requirements, after paying
the large dividend, Dufil relied on additional borrowings
to finance a portion of working capital and the huge
capex. As such, net debt rose by N15.2bn during FY17.
Funding Profile
The continuous rise in the asset base has been largely
driven by the rapid expansion in production capacity
across the various product lines. Accordingly, Dufil’s
assets base has expanded to N111.2bn at FY17, from
just N45.6bn at FY13, before rising marginally to a high
N113.5bn at 1QFY18. The 38% growth reported at
FY17 was driven by increased working capital assets, as
production was ramped up to take advantage of the
increased capacity. As a result of this, short term assets
now comprise over 60% of the asset base. Of this,
Inventory rose to N35bn at FY17, representing around a
third of assets, while receivables increased to
N29.6bnAlthough, the cash balance edged higher to
N5.5bn at FY17, the bulk pertains to unspent
borrowings, as the dividend had wiped out the strong
cash generated from operation. Hence, cash is likely to
decrease as borrowings are deployed to capex and
working capital requirements during FY18.
Nevertheless, excluding unspent borrowings, cash
typically trends at nominal levels, in line with the
holding policy.
Although, a significant portion of annual earnings was
distributed, Shareholder’s equity grew by 36% to
N24.6bn at FY17, rising further to N29bn at 1QFY18,
underpinned by retained earnings. Short term liabilities,
including trade and other payables and income tax
payable amounted to N18.7bn at FY17 (17% of
funding). The relatively low level of short term liabilities
when compared to the rising working capital
requirements explains Dufil’s reliance on short term debt
to fund the liquidity gap.
Table 8: Funding
profile (N’m) FY16 FY17
2017
forecast
%
achieved
ST Debt 41,800.4 44,697.5 26,228.5 170.4
LT Debt 7,632.5 20,576.9 12,984.8 158.5
Total Debt 49,432.9 65,274.5 39,213.3 166.5
Cash (4,968.4) (5,465.2) (277.6) 1,968.4
Net Debt 44,464.5 59,809.2 38,935.6 153.6
Equity 18,103.9 24,642.6 36,742.8 67.1
Key ratios (%):
Total debt: equity 273.1 264.9 106.7 -
Net debt: equity 245.6 242.7 106.0 -
Total debt: EBITDA 229.4 187.9 111.4 -
Net debt: EBITDA 206.4 172.1 110.7 -
Dufil has placed significant reliance on a mix of debt
facilities to fund its various projects over the years. In
this regard, total debt rose rapidly from a period low
N28.9bn at FY13 to N65.3bn at FY17, before tapering to
N61.4bn at 1QFY18, as some maturing obligations were
settled. Short term debt comprised around 68% of total
Nigeria Corporate Analysis | Public Rating Page 6
debt at FY17, as import finance facilities and
commercial paper (amounting to a combined N36.3bn)
were utilised to fund operations. Most of the short term
credit facilities are renewable annually and are spread
across a number of financial institutions. Long term
funding has historically been provided by commercial
banks and the Bank of Industry. However, Dufil issued
an initial N10bn in Series 1 bonds in 3Q FY17, under its
N40bn Bond Issuance Programme. The notes have a
maturity of five years and bear interest at 18.25% per
annum.
Table 9: Loan type (N’m) FY16 FY17
Overdraft 4,462.4 4,065.1
Short Term loans 6,628.6 4,334.7
IFF and commercial papers 30,709.4 36,297.7
Term Loans 7,632.5 10,576.9
Bond 0.0 10,000.0
Total 49,432.9 65,274.5
*Debt registered at a lower N61.5bn at 1Q FY18.
Despite higher debt, the firmer growth in profitability
supported an improvement in gearing metrics, with gross
debt to equity ratio declining to 265% at FY17 (FY16:
273%), while net gearing reduced to 243% (FY16:
246%). Similarly, earnings based gearing were also
reduced, with gross and net debt to EBITDA declining to
188% and 172% respectively (FY16: 229% and 206%),
indicating further strengthening of the balance sheet
position of the Company.
Outlook and Forecasts
Dufil’s medium term growth strategy is based on the
ongoing expansion of production capacity, raising its
market share and the diversification into other product
segments. This should see volumes increase and the
Company benefit from economies of scale and other
efficiencies through backward integration. In this regard,
management projects a 23% growth in revenue to
N211.7bn in FY18, underpinned by higher contribution
from noodles, as traded volumes continue to increase.
Thereafter, revenue growth over the medium term is
expected to be moderate, but remain robust at 17%, as
production is ramped up to capacity, with a revenue
target of around N365bn by FY22. To achieve the
anticipated medium term growth, new production lines
are expected to become operational in the noodles and
seasoning segment, while the flour milling capacity will
be expanded to around 2,800MT per day.
Profitability margins are expected to widen, with the
operating margin trending towards 20% over the next
couple of years. Similarly, credit protection metrics are
projected to improve, with the higher interest coverage
ratios reflecting sustained improvement in earnings.
While revenue targets appear aggressive, given the
challenging economic environment, Dufil has displayed
sufficient capacity to attain set targets in the past.
Moreover, the economy appears to be strengthening,
with key economic metrics trending upwards, which will
naturally support volume and revenue growth
Revenue of N45.1bn at 1Q FY18 was in line with
budget, and registered an annualised 5% growth over
FY17. While margins remain robust, they registered
slightly behind budget, given some costs overruns,
associated with increased commodity prices and freight
charges at the start of 2018. As a consequence, net
interest cover declined to 2.7x (FY17: 3.3x). Overall,
NPBT of N3.8bn, represented only 14% of FY18
budget. Management has however indicated that more
stringent cost control measures are to be implemented,
while enhancing revenue generation drive to ensure the
target is attained by year end.
Dufil plans to raise additional funds from the capital
market, under the N40bn Programme. This would be
utilised to repay expensive short term loans and fund
expansion activities, thereby improving financial
flexibility, as long term loans are generally cheaper, and
repayments are spread over a longer period.
Nevertheless, total debt would remain elevated over the
next two years, reducing from FY20, as projects are
successfully bedded down. In this regard, gearing
metrics are expected to gradually reduce over the
medium term, as earnings rise and debt level reduces,
falling below 1.5x of equity from FY20.
Update on N10bn Series 1 Bond Issue
In FY17, Dufil registered a N40bn multi-year Bond
programme, followed by the successful issuance of
N10bn under Series I in August, 2017.
The N10bn Series 1 bond is a senior unsecured
obligation, and has a five-year tenor, with a fixed
18.25% annual interest rate. The legal maturity date is 1
September 2022. Interest on the bonds will accrue from
issue date and will be payable semi-annually in arrears in
March and September of every year, while the principal
will be settled through a bullet repayment upon maturity.
The net proceeds from the Bond Issue have been utilised
to repay some expensive short term debt and fund a part
of the expansion project. The first coupon payment of
N901.5m was made in March 2018, with the next
expected in September 2018, with full settlement
expected in 2022.
GCR has reviewed the trustees report (received from
ARM Trustees and Stanbic IBTC trustees), regarding the
performance of the bonds, dated 14 May, 2018. GCR
notes that the coupon payment was made to bondholders
in a timely fashion, it was also reported that there has
0
100
200
300
400
500
600
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
FY13 FY14 FY15 FY16 FY17
%N'm Figure 2- Gearing metrics
Total debt Net debtGross gearing (RHS) Net gearing (RHS)Net debt:EBITDA (RHS)
Nigeria Corporate Analysis | Public Rating Page 7
been no breach to covenants or pledges, and there have
been no changes to the security structure.
Meaning of the Rating of the Series 1
The ratings accorded to the Series 1 Bonds are public national
scale ratings. National scale credit ratings are an assessment of
credit quality relative to the rating of the lowest credit risk in a
country. This lowest risk will normally, although not always,
be accorded to financial commitments issued or guaranteed by
the relevant sovereign state.
The public ratings accorded to the Bonds relate to ultimate
payment of interest and principal (as opposed to timely, akin
to an expected loss rating, which is a function of probability of
default and loss severity). The ratings exclude an assessment
of the Issuer’s ability to pay any (early repayment) penalties.
Being senior unsecured debt, the Bonds reflect similar
recovery prospects to senior unsecured creditors in the event
of a default. As such, the Series 1 Bonds reflect the same long
term rating as that accorded to the Issuer. Should the rating of
the Issuer change, the ratings of the Series 1 will also change,
but not necessarily in the same quantum.
The suffix code identifies to which country the rating relates;
‘NG’ means Federal Republic of Nigeria. A Rating outlook
indicates the potential direction of a rating over the medium
term, typically a one or two year period.
Nigeria Corporate Analysis | Public Rating Page 8
Dufil Prima Foods PLC (Naira in Millions except as Noted)
IFRS
Statement of Comprehensive Income- 31 December
2013 2014 2015 2016 2017 1Q2018*
Turnover
67,965.4 89,717.7 103,893.9 120,741.0 171,751.8 45,075.9
EBITDA
8,953.8 16,285.5 8,012.2 21,546.7 34,747.3 6,866.1 Depreciation
(1,947.9) (2,276.9) (2,430.1) (2,599.3) (2,694.4) (800.6)
Operating income
7,005.9 14,008.6 5,582.1 18,947.4 32,052.9 6,065.5 Net finance charges
(1,898.4) (2,043.1) (4,457.2) (7,298.5) (9,699.7) (2,269.5)
Foreign exchange (loss)/gain 97.0 (1,772.2) (67.9) (4,084.5) (325.7) 0.0 Other operating income/(expense)
400.9 626.1 403.6 737.5 1,138.9 0.0
NPBT
5,605.2 10,738.1 1,460.6 8,301.9 23,166.5 3,796.0 Taxation paid
(300.6) 15.1 (115.3) (203.8) (695.8) (250.5)
Profit from continuing operations
5,304.7 10,753.2 1,345.4 8,098.1 22,470.7 3,545.5 Other comprehensive (loss)/gain
(16.6) (85.9) (123.9) (150.2) (0.2) 0.0
Interim dividend paid
0.0 0.0 0.0 0.0 0.0 0.0 Total Comprehensive Income 5,288.1 10,667.4 1,221.4 7,947.9 22,470.5 3,545.5
Statement of cash flows
Cash generated by operations
11,041.7 19,816.4 10,255.7 20,516.8 37,163.8 n.a Utilised to increase working capital
(3,143.3) (10,041.1) 1,373.0 (14,733.9) (13,449.7) n.a
Finance charges/interest paid
(1,898.4) (2,129.4) (4,550.7) (7,187.8) (9,622.3) n.a Taxation paid
(1,797.0) (2,142.2) (1,931.3) (2,239.7) (2,316.6) n.a
Cash flow from operations
4,203.0 5,503.7 5,146.8 (3,644.6) 11,775.1 n.a Maintenance capex‡
(1,947.9) (2,276.9) (2,430.1) (2,599.3) (2,694.4) n.a
Discretionary cash flow from operations
2,255.1 3,226.8 2,716.7 (6,243.9) 9,080.7 n.a Dividends paid
(4,254.6) (11,818.4) (67.5) (67.5) (15,937.9) n.a
Retained cash flow
(1,999.5) (8,591.6) 2,649.2 (6,311.5) (6,857.2) n.a Net expansionary capex
(1,263.9) (2,111.5) (632.2) 1,804.5 (8,358.3) n.a
Investments and other
(1.6) (16.7) 3.8 0.2 0.0 n.a Proceeds on sale of assets/investments
138.3 99.4 45.5 64.1 47.2 n.a
Shares issued
0.0 0.0 0.0 0.0 0.0 n.a Cash movement: (increase)/decrease
99.0 (753.6) (391.2) (3,707.0) (496.8) n.a
Borrowings: increase/(decrease)
3,027.8 11,374.0 (1,675.0) 8,149.8 15,665.1 n.a Net increase/(decrease) in debt
3,126.8 10,620.4 (2,066.2) 4,442.7 15,168.3 n.a
Statement of financial position
Ordinary shareholders interest
10,218.1 9,053.0 10,216.9 18,103.9 24,642.6 29,003.1 Outside shareholders interest
0.0 0.0 0.0 0.0 0.0 0.0
Pref shares and conv debentures
0.0 0.0 0.0 0.0 0.0 0.0 Total shareholders' interest
10,218.1 9,053.0 10,216.9 18,103.9 24,642.6 29,003.1
Current debt
18,903.1 33,443.8 35,286.6 41,800.4 44,697.5 40,647.0 Non-current debt
9,971.3 8,778.4 5,449.4 7,632.5 20,576.9 20,840.8
Total interest-bearing debt
28,874.3 42,222.3 40,735.9 49,432.9 65,274.5 61,487.8 Interest-free liabilities
6,507.1 7,702.6 9,162.0 12,786.3 21,250.9 22,981.3
Total liabilities
45,599.6 58,977.8 60,114.8 80,323.1 111,168.0 113,472.2 Property, Plant and Equipment
25,220.8 28,049.3 28,619.2 26,811.0 35,145.6 37,890.6
Investments and other non-current assets
1,247.4 724.7 190.8 219.6 175.0 0.0 Cash and cash equivalent
116.6 870.2 1,261.4 4,968.4 5,465.2 6,591.3
Other current assets
19,014.7 29,333.6 30,043.4 48,324.1 70,382.1 68,990.3 Total assets
45,599.6 58,977.8 60,114.8 80,323.1 111,168.0 113,472.2
Ratios
Cash flow: Operating cash flow : total debt (%)
14.6 13.0 12.6 neg 18.0 0.0
Discretionary cash flow : net debt (%)
7.8 7.8 6.9 neg 15.2 0.0 Profitability:
Turnover growth (%)
14.9 32.0 15.8 16.2 42.2 5.0 Gross margin (%) 24.4 27.6 17.3 26.9 29.9 n.a EBITDA : revenues (%)
13.2 18.2 7.7 17.8 20.2 15.2
Operating profit margin (%)
10.3 15.6 5.4 15.7 18.7 13.5 EBITDA : average total assets (%)
20.3 31.4 13.7 32.1 38.4 25.8
Return on equity (%)
54.7 111.6 14.0 57.2 105.1 52.9 Coverage:
Operating income : gross interest (x)
3.6 6.6 1.2 2.6 3.3 n.a Operating income : net interest (x)
3.7 6.9 1.3 2.6 3.3 2.7
Activity and liquidity:
Trading assets turnover (x)
5.0 4.9 4.6 4.4 4.3 7.7
Days receivable outstanding (days)
40.9 38.6 32.6 39.4 50.6 30.0 Current ratio (:1)
0.8 0.8 0.7 1.0 1.2 1.2
Capitalisation:
Net debt : equity (%)
281.4 456.8 386.4 245.6 242.7 189.3
Total debt : equity (%)
282.6 466.4 398.7 273.1 264.9 212.0 Net debt : EBITDA (%) 321.2 253.9 492.7 206.4 172.1 199.9 Total debt : EBITDA (%) 322.5 259.3 508.4 229.4 187.9 223.9
‡ Depreciation used as a proxy for maintenance capex expenditure *Unaudited numbers
Nigeria Corporate Analysis | Public Rating Page 9
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2017 audited annual financial statements (plus four years of comparative numbers),
industry comparative data and regulatory framework
five year projections
a breakdown of facilities available and related counterparties.
information specific to the rated entity and/or industry was also received. The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
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