Naira Devaluation Pressures Profit for Nigeria’s Biggest Miller

(Bloomberg) --

Flour Mills Nigeria Plc said profit margins have come under pressure after being unable to pass on to consumers rising cost of production due to a weaker currency.

While the Nigerian naira weakened by about 25% in the first quarter ended June, prices of the company’s products only rose by an average of 10% to 12%, Group Managing Director Paul Gbededo said in interview in Lagos, Nigeria’s commercial hub. Over half of the price increase was absorbed by the company, he said.

Nigeria’s biggest miller said a decision it made four years ago to source more of its raw materials locally when the country faced a similar currency crisis after oil price crashed has helped it prepare for the current challenges. It now gets 25% of its raw materials locally and plan to increase that to about 40% in the next four years.

Local sourcing has helped reduce costs after the price of maize per ton doubled to 150,000 naira from 75,000 last year following the central bank’s decision in July to add corn to an existing list of imported items for which purchases of foreign exchange in the official market aren’t allowed.

“The central bank’s decision is driven by foreign exchange pressures, not that we have surplus maize in the country,” he said.

Flour Mills is planning to raise between 10 and 20 billion naira as the third tranche of a 70 billion naira bond program it started two years ago. The company is leveraging the low yield environment to prune its debts and reduce finance cost.

“We have worked to change the structure of our debt, turning more and more to long term debt rather than short term debt.”

The food producer’s revenue increased by 15% to 155 billion naira, while profit after tax jumped 17% to 4.9 billion naira driven by growth in its agricultural processing division and cost curb measures it implemented. The company hopes to maintain the momentum for the rest of the year, Gbededo said.

©2020 Bloomberg L.P.