Dangote sells noodles firm to Indomie maker, Dufil

Dangote Flour Mills has exited the noodles business and sold its assets to Dufil Prima Foods, makers of Indomie noodles, saying it no longer consider it as strategic.Punch

A closer look at the December 2016 financials shows that:

The amount of impairment reversal recognised for 2016 by the Flour mothballed plant in Kano based on capacity utilization was #1.05billion.

However in 2015, the amount of the loss recognized was:

Flour-#1.43Billion- mothballed plant in Kano

Pasta- #0.68 Billion –CGU based on excess capacity

Noodles- #0.55Billion –CGU based on excess capacity

Its investment in Dangote Noodles Limited was fully impaired in 2015 and the Management considered an alternative approach to the operation as at the end of 2016 Financial Year End.

The Segment Reporting shows the following:

                                                            2016 Revenue

Flour                                                        #83.6billion

Pasta                                                        #15.6billion

Noodles                                                   #8.4billion

PAT 2016

Flour                                                        #12.1billion

Pasta                                                        #244.9million

Noodles                                                   (#417.1million)

                                                              2015 Revenue

Flour                                                        #36.0billion

Pasta                                                        #8.3billion

Noodles                                                   #5.3billion

   PAT 2015

Flour                                                        (#14.0billion)

Pasta                                                        (#1.9billion)

Noodles                                                   (#1.3billion)

The Noodles Market is saturated with a whole lot of players with major and fringe players fighting for Market Shares. Dufil the Major Player in that industry with more than 70% Market Share was more than 10years in the Nigeria Market before any competition ever showed up and that was in the like of Chikki.  We have names like Mimee, Honeywell, Golden Penny, Dangote, Sun yum, Tummy Tummy, Uno, Cherie, Star, Mc Chew, Niccus, Smoodles and Chefmie all playing in different market segment .

Dangote does not have a competitive advantage in this industry and the competition is more like a cut throat.

We conclude that it is a wise decision for the Company to sell and take cash in order to support the more viable business of Flour and Pasta. Because in an industry with a size of #350billion making #8.4billion out of that is just a drop in the ocean.

Although, the Market will swing more now in favour of Dufil, every other players is expected to up their game as Dangote had bowed down and back out to focus on the areas of its strength.

We await the response of the Market to this news as trading opens, but we belief the Company should come out better from this deal. It is a win –win for the Company and its Shareholders.

Dangote Closed at #4.40 on 18^th April, 2017 the last trading day before the news became public.