Dufil Prima Foods PLC Nigeria Corporate Analysis April 2017

Transcription

1 Dufil Prima Foods PLC Nigeria Corporate Analysis April 2017 Rating class Rating scale Rating Rating Outlook Expiry date Long term National A- (NG) Positive April 2018 Short term National A2 (NG) Positive April 2018 Financial data: (USD m comparative) 31/12/15 31/12/16 N/USD (avg.) N/USD (close) Total assets Total debt Total capital Cash & equiv Turnover EBITDA NPAT Op. cash flow 26.0 (11.7) Market share; noodles (70%), cooking oil (12-15%) Market cap n.a Dufil Prima Foods Plc ( Dufil, group or the Company ) Rating history: Initial/Last rating (June 2016) Long term: A- (NG) SShort Short term: A2 (NG) Rating Outlook: Stable Rating methodologies/research Criteria for rating Corporate entities (updated February, 2017) Dufil Prima Foods PLC Issuer rating report, June 2016 Glossary of terms/ratios, February 2017 GCR contacts: Primary Analyst: Kunle Ogundijo kunle@globalratings.net Committee Chairperson: Dave King king@globalratings.net Analyst location: Lagos, Nigeria Website: Summary rating rationale Dufil s long operational track record and the continuous expansion of production capacity (across the segments) makes it one of the most prominent players in the rapidly growing consumer food sector, epitomised by Its dominance of the noodles segment and growing presence in the pasta, cooking oil and snack segments. Its operations are supported by its substantial marketing spend to develop brand awareness and an effective distribution network. Despite the challenging operating environment that persisted in 2016, Dufil maintained its upward growth trajectory, reporting a 16% increase in revenue to a new high of N120.7bn in FY16. While growth in previous years was mainly attributed to the expansion in production capacity and higher traded volumes, growth in FY16 was underpinned by an upward adjustment in the prices of the various products. Notwithstanding the economic crunch, demand remains high, reflecting the strong brand equity of the Company. Resulting from efficient cost management and scale benefits from rising production volumes, Dufil reported stronger profitability in FY16, overcoming the slump in FY15. Dufil was able to mitigate the associated high cost of importation triggered by the devaluation of the Naira value in 2016 through greater local sourcing of raw materials, coupled with a slight dip in the global commodity prices for wheat and oil. To this end, the gross margin rose to 26.9% (FY15: 17.3%), while the effect of the firmer earnings translated to a much wider operating margin of 15.7% (FY15: 5.4%). Liquidity concerns have been exacerbated by increased working capital requirements, with the Company reporting a negative cash flow from operations in FY16. This reflects the increased inventory holdings necessary to operate in the current environment, but more so, a large increase in related party debtors to N8.3bn (FY15: N1.3bn). Due to the additional working capital requirements, total debt rose by N8.7bn to N49.4bn at FY16, above budget of N29.2bn. Of this, short term debt amounted to a higher N41.8bn at FY16 (FY15: N35.3bn), which incurred high interest charges and contributed to the 63% increase in the interest charge to N7.4bn in FY16. Nevertheless, firmer operating income resulted in a stronger net interest cover of 2.6x (FY15: 1.3x). Gearing metrics strengthened given the firmer growth in earnings, with gross gearing moderating to 273% from 399% at FY15, and net gearing to 246% from (FY15: 386%). Similarly, gross and net debt to EBITDA declined to 229% and 206%, from 508% and 493% respectively. Notwithstanding the current macro-economic challenges, prospects for growth remain high and expected to be driven by government s effort to stimulate broader growth across the various sectors, supported by vast natural resources and a vibrant manpower. Factors that could trigger a rating action may include Positive change: Successful completion of the proposed capacity expansion programme on schedule and within budget, leading to sustained growth in profitability. A material improvement in gearing metrics would also be positively considered. Negative change: Earnings underperformance, combined with deterioration in gearing and other credit protection metrics. Nigeria Corporate Analysis Public Rating

2 Background and recent developments 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 six wholly owned subsidiaries in the group, being; 1) De United Foods Industries Limited ( DUF ) commenced operations in 1996 with the commissioning of the first noodles factory in Nigeria, located in the industrial hub of Ota in Ogun State. Dufil fully acquired the company in ) Insignia Print Technology LFTZ Enterprise ( Insignia ); was incorporated in 2008 to manufacture and sell packaging materials. It is located at the Lekki Free Trade Zone in Lagos. 3) Northern Noodles Limited ( NNL ) commenced operations in 2011 in Kaduna. It manufactures and markets the indomie and minimie brands of instant noodles for consumers in the central and northern regions. 4) Pure Flour Mills Limited ( Pure Flour Mills ) was established in 2011 and operates flour and pasta divisions. 5) Raffles Oil LFTZ Enterprise ( Raffles ) manufactures vegetable oil, under the Power Oil brand. The company operates a palm oil refinery in the Free Trade Zone, Lagos, with a 1,500 metric tonnes daily production capacity. Raffles is exempt from tax by virtue of being situated in a free trade zone. 6) De United Foods Industries Ghana Limited ( DUF Ghana ) is a foreign subsidiary, established in 2013 to import and market the indomie brand of instant noodles in Ghana. A number of consumer products are produced across the group, but Indomie noodles is the flagship brand, enjoying wide spread acceptance in the market across age groups. It ranks as the most prominent noodles brand, with a large market share. A trade mark and technical know-how agreement is in place with PT Indofood Sukses Makmur Tbk of Indonesia ( Indofood ), one of the leading noodle manufacturers globally. Raw material supplies are procured both locally and abroad, with Indofood as the major overseas supplier, while Dangote Flour Mills Plc, Hewang Packaging and Printing FZE, SIAT Nigeria Limited make up some of the local suppliers. Dufil also benefits from backward integration process, with some products from some subsidiaries serving as inputs in other subsidiaries; Insignia Print Technology LFTZ provides packaging materials to other companies in the group. National Agency for Food and Drug Administration and Control serves as the major regulatory agency, and has registered and certified all products manufactured by Dufil. Relevant hygiene and manufacturing/laboratory practices standards have been incorporated into all processes at the group s production plants to ensure consistency of product quality. Capacity utilisation table as at January 2017 is provided in table 1; Table 1: Capacity utilisation in January 2017 Product Installed capacity (MT 1 ) Utilisation (%) Noodle 264, Seasoning 19, Packaging 8, Flour 122, Pasta 34, Oil 330, Snacks 10, Source: Management Shareholding and corporate governance 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 different fields. Some of the directors also hold other directorships in other international companies. 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 ). Table 2: Corporate governance summary Description Directors Frequency of meetings Separation of Chairman Board committee Internal control and compliance External auditor Findings 2 executive 5 non-executive, including an independent director and the Chairman At least once per annum Yes Executive Management, Audit Committee Yes, reports to the audit committee Akintola Williams Deloitte; an unqualified, clean audit opinion was issued for F16 The shareholding structure remained unchanged over the last 12 months with major shareholders; Tolaram and Salim Groups having 49% each of Dufil s shares, while the remainder is held by a number of local investors. 1 Metric Tonnes Nigeria Corporate Analysis Public Rating Page 2

3 Industry Overview Notwithstanding the challenging economic environment in 2016, growth in the packaged food sector of the Fast Moving Consumer Goods ( FMCG ) segment of the industry remained resilient. The robust growth displayed over the last decade has been supported by effective and efficient marketing and distribution strategies, growing preferences for packaged food products, a rapidly expanding population and increased urbanisation, especially around the key cities of Lagos, Abuja, Port- Harcourt and Kano. Government policy has also contributed to the growth of the sector, as the continued ban on the importation of certain food products 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. The food, beverage and tobacco category is one of the fastest growing segments in the manufacturing sector of the economy, contributing around 4% 2 to Gross Domestic Product in Key product categories, include; dairy, baked goods, cereal, pasta and noodles, and chilled foods, and is expected to continue its upward trend given growing preferences for packaged foods among the youths. The FMCG 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 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. Besides the massive infrastructural deficit, most manufacturers are currently grappling with inability to access forex, and the attendant high cost to import raw 2 Nigeria Bureau of Statistics materials. The Central Bank of Nigeria s ( CBN ) restrictive forex regime has affected many manufacturers as they have not been able to effectively fund raw material purchases. Although, the pressure on the Naira appears to have eased slightly in recent weeks, with sustained CBN intervention in providing liquidity to the forex market, (especially the wholesale forwards segment), increased demand for forex for the 41 items on the restricted list could limit the gains already recorded. Nevertheless, the rise in disposable incomes of the middle-class, fast changing consumption preferences, and improved distribution channels suggest that the prospects for growth remain strong. Government efforts to stimulate broader growth across the various sectors should also help reduce infrastructural deficit and help to diversify the economy. Key financial comparatives for some major players in the flour milling business is provided in the table 3 below; Table 3: Key Comparatives FY16 Dufil Honeywell FMN (N m) Revenue 120, , ,586.5 Op. profit 18,947.4 (2,049.6) 9,052.1 NPBT 8,301.9 (2,869.3) 11,489.3 Total Debt 49, , ,253.2 Cash (4,968.4) (15,502.1) (33,213.0) Net Debt 44, , ,040.1 Equity 18, , ,766.1 Key ratios (%): Gross margin Op. margin 15.7 (4.0) 2.6 Total debt: equity Net debt: equity Source: Audited Financials Earnings diversification Dufil remains one of the largest players in the food segment of the economy and enjoys wide spread acceptance. Its products include; Indomie noodles (with various flavours), Minimie noodles, Power pasta, Power oil, Minimie chinchin (snack), and Pure flour. Dufil has a country wide presence with its products being distributed countrywide solely by Multipro Consumer Products Limited ( MCPL ). 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 advertisements and promotions that are aimed at growing market share in the various product lines. Table 4: Revenue diversification N m % N m % Noodles 64, , Flour 6, , Pasta 4, , Packaging , Palm oil 26, , Snacks 1, , Total 103, , The noodles segment continues to account for the bulk of revenue, rising by 36% to N87.8bn in FY16, Nigeria Corporate Analysis Public Rating Page 3

4 translating to 73% contribution (FY15: 62%). Being the flagship product of the group, and with new flavours being introduced into the market, demand for the product has continued to grow across demographic lines, indicating a somewhat inelastic demand to the increase in prices. As expected, revenue from the palm oil segment declined by N9.4bn to N17bn, equating a 14% contribution in FY16 (FY15: 25%). However, revenue from this segment could rebound over the medium to long term, as the Company has acquired a palm oil plantation, which will reduce forex challenges (associated with the purchase of raw materials), and improve capacity utilisation. The pasta, packaging and snack segments all reported moderate revenue increases in FY16, leading to marginally higher contributions compared to the previous year, thus indicating that market penetration initiatives have started to yield benefits. Table 5: Market share per segment Key products (%) Instant noodles Indomie Minimie 70 Oil Power oil Pasta Power pasta 5-7 Flour Pure flour 2 Snack Minimie chinchin n.a The market share for pure flour remains low, as the bulk of flour produced is consumed internally in the manufacture of noodles, snacks and pasta. 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, Akintola Williams Deloitte issued unqualified opinions for each of the five years of audited financial statements. Despite the challenging operating environment that persisted for most of 2016, Dufil maintained its upward growth trajectory, reporting a 16% increase in revenue to a new high of N120.7bn. While the consistent increase in revenue through the review period (revenue doubled between FY12 and FY16) is attributed to the expansion in production capacities and higher traded volumes, the growth in FY16 is largely underpinned by an upward adjustment in the prices of the various products. Given competitive pressures and the need to maintain market share, the Company had absorbed the higher cost of production in 2015, with prices left unchanged. However, management implemented price hikes in 2016, leading to a substantial increase in turnover, especially from the noodles brand. Demand for the Company s products remains high despite the economic challenges. Resulting from efficient cost management and scale benefits from higher production volumes, Dufil reported increased profitability in FY16, overcoming the slump in F15. With all raw materials for the production of noodles now sourced locally and with a slight dip in the global commodity prices for wheat and oil, Dufil was able to mitigate the associated high cost of importation triggered by the devaluation of the Naira value in As a result of the efficient pricing of raw materials and other inputs, which saw production costs rise by a marginal N2.3bn to N88.3bn, gross margin rose to 26.9% (FY15: 17.3%). In this regard, gross profit registered at an all-time high of N32.5bn in F16 (FY15: N18bn). On the back of higher royalty and technical fees, administrative expenses rose by 10% to N5.3bn, while marketing expenses edged higher to N8.3bn (FY15: N7.5bn) due to increased advertising, albeit partly moderated by a reduction in trade promotions. Thus, resulting from the firmer earnings, the EBITDA margin more than doubled to 17.7% (FY15: 7.7%). With the marginal increase in depreciation to N2.6bn, operating profit registered at a high N18.9bn, thus, widening the operating margin to 15.7% (FY15: 5.4%). Table 6: Income statement (N'm) FY14 FY15 FY16 Growth (%) Revenue 89, , , Gross Profit 24, , , EBITDA 16, , , Depreciation (2,276.9) (2,430.1) (2,599.3) 7.0 Op. Profit 14, , , Net interest (2,043.1) (4,457.2) (7,298.5) 63.7 Other (1,227.4) (3,347.0) (1097.0) NPBT 10, , , Key ratios (%) Gross margin EBITDA margin Op. margin Net int. cover (x) Net finance charges rose by N2.8bn to N7.3bn, on the back of increased overdraft and import finance facilities to fund working capital requirements. Being USD denominated obligations, the impact of currency devaluation resulted in the higher interest charge, albeit, this was slightly moderated by interest income of N108m. Notwithstanding this, the firmer operating income resulted in a higher net interest cover of 2.6x (FY15: 1.3x), although, this remains well below the high 6.9x reported in F14, just prior to the capex programme. Despite a N4.1bn forex loss on restatement of year-end inventory balances and term loans (partly moderated by proceeds from the sale of scrap and other miscellaneous income), NPBT of N8.9bn was 5x higher than FY15 figure. After accounting for higher tax of N204m (FY15: N115m), NPAT was reported at a higher N8.1bn (FY15: N1.3bn). Cash flows In line with trend, cash generated by operations mirrored the growth in EBITDA, doubling to N20.5bn in FY16. Given the rise in production capacity, there has been significant working capital absorptions through the review period, except FY15 where a small release was reported. Of the substantial N14.7bn absorption reported in FY16, N5.8bn derived from inventory, reflecting the greater volume of raw materials stock holdings needed Nigeria Corporate Analysis Public Rating Page 4

5 to protect against import restrictions and to hedge against forex risks. As per policy, Dufil maintains around two months worth of raw materials for the various products, however, given the recent challenges associated with securing forex for importation, the Company has held sufficient stock (especially for wheat and oil) to cover up to six months requirements. A substantial N9.9bn related to trade and other receivables, with N7bn being expected from the sole distributor MCPL, while a further N1.7bn was owed by PT Indofood. In previous years, MCPL paid monthly in advance for a significant portion of sales, in effect, reducing the level of receivables. However, the economic environment has reduced its ability to make advanced payments, which declined substantially during FY16, while Dufil provided more favourable 30-day payment term. The combination of lower advanced payments and utilisation of trade credit term by MPCL translated into the substantial increase in related party receivables. Procurements are handled by the head office, and are distributed to the various factories based on requisitions. Dufil generally enjoys four-five months payment period on foreign transactions, while receiving days terms on most local purchases. In this regard, the working capital absorption was however, partly moderated by a N3.6bn release from creditors. The high working capital requirements, combined with much higher interest charges and tax payments saw a cash outflow from operations of N3.6bn (FY15: N5.1bn inflow). Thus, in line with management s decision to retain profit to fund growth, a relatively small dividend payment of N68m was made in FY16. With no major construction activity carried out during the year, additions to capex amounted to a relatively low N795m, mainly relating to some construction work in progress, land acquisition and purchase of plant and machinery at some factories. Thus, capex, along with the working capital requirements were largely financed through borrowings, which saw net debt rise by N4.4bn during FY16. Funding Profile As a result of the continuous expansion in production capacities, Dufil s asset base expanded at a five-year compound annual growth rate ( CAGR ) of 25% to FY16. The 34% growth in asset base to N80.3bn at FY16 was driven by increased working capital assets, as production was ramped up to take advantage of the increased capacity installed in previous years. This has seen the asset mix shift from a concentration to fixed assets in FY11 and FY12, to a mix, comprising 60% short term assets in FY16. Inventory comprised around a third of assets, with receivables and other assets (including prepayments) comprising 22% and 6% respectively. Although, Dufil reported negative cash flow from operation, unspent borrowings resulted in a higher cash balance of N5bn at FY16 (FY15: N1.3bn). Cash is likely to decrease as borrowings are deployed to capex and working capital requirements. Equity grew by 77% to N18.1bn at FY16 on the back of increased profit retention, translating to a higher 23% of funding (FY15: 17%). Short term liabilities, including trade and other payables, income tax payable and deferred income amounted to N10.4bn (13% of funding). This compares with the high weighting towards short term assets, necessitating the increased short term debt to fund the liquidity gap. Table 7: Funding 2016 FY14 FY15 FY16 profile (N m) forecast ST Debt 33, , , ,250.9 LT Debt 8, , , ,921.0 Total Debt 42, , , ,172.0 Cash (870.2) (1,261.4) (4,968.4) (1,326.4) Net Debt 41, , , ,845.6 Equity 9, , , ,020.4 Key ratios (%): Total debt: equity Net debt: equity Total debt: EBITDA Net debt: EBITDA In this regard, total debt rose by N8.7bn to N49.4bn at FY16, above the budget of N29.2bn. Of this, short term debt amounted to a higher N41.8bn at FY16 (FY15: N35.3bn), as Dufil funded operations through import finance facility, overdrafts and commercial paper. The Company had intended to issue a N20bn medium term bond during 2016, but as this was not concluded, it was forced to utilise more expensive short term debt instruments. Most of short term facilities are renewable annually and are spread across a number of financial institutions, with interest rates ranging between 13-22%. Long term loans rose by N2.2bn to N7.6bn at FY16, with the bulk provided by commercial banks and the Bank of Industry, with an interest rate of 7-21%. Table 8: Loan type (N m) FY15 FY16 Overdraft 2, ,462.4 Short Term loans 3, ,628.6 IFF and Commercial Papers 29, ,709.4 Term Loans 5, ,632.5 Total 40, ,432.9 *Debt registered at a lower N48.3bn at end January FY17. Notwithstanding the increase in total debt, gearing metrics tapered given the firmer growth in profitability. Accordingly, the gross debt to equity ratio declined to 273% from 399% at FY15, while net gearing reduced to 246% from 386% at FY15. Similarly, earnings based gearing were also reduced, with gross and net debts to EBITDA declining to 229% and 206%, from 508% and 493% respectively. Nigeria Corporate Analysis Public Rating Page 5

6 N'm Gearing metrics % flexible packaging segment (Insignia), while, the snack segment (minimie chin-chin) would see an increase in production capacity from 10,000 MT to 20,000 MT. Further details on the expansion programme are provided below; FYE12 FYE13 FYE14 FYE15 FYE16 Total debt Gross gearing (RHS) Net debt:ebitda (RHS) Outlook and Forecasts Net debt Net gearing (RHS) This section outlines Dufil s medium term strategy as it relates to expansion, improving market share as well as the diversification into other product segments. In line with previous years, growth is expected to be largely driven by increased volumes, complemented by a stricter management of costs to enhance profitability. In contrast to the conservative revenue forecast in FY16 (given the macro-economic challenges and the scale down in the palm oil business), management anticipates an uptick in revenue to over N180bn in FY17 to be mainly driven by the higher prices of products and an increase in traded volumes within the existing production capacity. Subsequently, growth is expected to remain robust over the medium term, with revenue projected to exceed N200bn from FY18. To achieve the anticipated medium term growth, Dufil has commenced another phase of expansion, which will see around USD25m expended to increase production capacities (in four segments) in order to meet expected higher demand for its products. Notably, profitability margins are expected to remain robust, and projected higher interest coverage ratios would reflect sustained improvement in earnings. Although, targets appear aggressive, especially in light of current economic challenges, Dufil has demonstrated the capacity to attain revenue and expansion targets, with a CAGR of 21% reported over the last five years. The proposed expansion seeks to improve production capacities in the noodles, seasoning, packaging and snack segments; Additional 20,000 MT will be added to the noodles production capacity (at Ota, in Ogun State) to make an overall total of 290,000 MT. The additional output will cater for the increased demand in South- West Nigeria, as well as exports. The seasoning segment expansion would include an increase in blending capacity from 2.4 MT to 4.8 MT per hour, while 20 new packaging lines are to be added to make 78 lines, in order to meet additional requirements for noodles production. A blown film machine 3 with a production capacity of 3,000 MT per annum is to be installed in the Table 9: Expansion of production capacities (USD'000) Particulars Noodles Seasoning Insignia Snacks Total Land and Building , ,357.3 Plant and Mach. 4, , , , ,610.9 Auxiliaries/spares 4, , , ,814.3 Others Total 10, , , , ,003.0 Tenor (Months) According to Dufil, the required credit lines to finance the projects have been opened with its bankers and agreements have been reached with the equipment manufacturers in Japan. In this regard, the required machinery is scheduled to be delivered in Q3, with assembling completed in Q4 FY17. Production from the new lines is then expected to commence in Q1 FY18. In effect, the completion timeframe on the projects is around 12 months. Dufil recently acquired around 18,000 hectares of farmland to be cultivated for oil palm production. Land preparation activities have commenced ahead of the first set of seedlings being planted in Q3 FY17. The plantation is expected to start yielding palm fruits by FY23, and should ensure a steady supply of palm oil to the refinery (while also reducing forex challenges) and allow production to be ramped up to capacity. Following the acquisition of land in Ghana, the proposed construction of a noodles plant would commence soon. Nevertheless, the export of noodles to Ghana for sales has continued to grow in recent years, providing a stable source of foreign exchange to part finance foreign transactions. As part of expansion plans, Dufil recently acquired the noodles segment of Dangote Flour Mills PLC in order to increase market share and consolidate on its leading position in the noodles segment of the industry. According to management, a purchase consideration of c.usd12m (to be funded equally from equity and debt) would be paid for the facility, in five equal payments till June Dufil plans to raise funds from the capital market, with a proposed N20bn bond expected to be issued in Q2 FY17. This would be utilised to repay expensive short term loans and fund a part of expansion activities, thereby, improving financial flexibility, as well as easing liquidity constraints associated with the funding mismatch on long term assets. Furthermore, with the increase in the quantum of raw materials sourced locally, forex requirements would likely reduce going forward. Despite that all USD denominated loans on the book are to be fully paid by end FY17, debt level is likely to remain high over the medium term, as future bond issuances are planned by management. 3 An advanced technology from Germany used in the production of low density polyethylene. Nigeria Corporate Analysis Public Rating Page 6

7 Dufil Prima Foods PLC (Naira in Millions except as Noted) IFRS Statement of Comprehensive Income- 31 December Q2017* Turnover 59, , , , , ,952.1 EBITDA 7, , , , , ,576.4 Depreciation (1,409.2) (1,947.9) (2,276.9) (2,430.1) (2,599.3) (634.2) Operating income 5, , , , , ,942.3 Net finance charges (1,578.7) (1,898.4) (2,043.1) (4,457.2) (7,298.5) (2,688.6) Other operating income/(expense) (1,227.4) (3,347.0) 0.0 NPBT 4, , , , , ,253.7 Taxation paid 57.4 (300.6) 15.1 (115.3) (203.8) (150.5) Profit from continuing operations 4, , , , , ,103.2 Other comprehensive (loss)/gain 3.1 (16.6) (85.9) (123.9) (150.2) 0.0 Interim dividend paid Total Comprehensive Income 4, , , , , ,103.2 Statement of cash flows Cash generated by operations 9, , , , , ,737.3 Utilised to increase working capital (6,872.0) (3,143.3) (10,041.1) 1,373.0 (14,733.9) (10,893.3) Finance charges/interest paid (1,578.7) (1,898.4) (2,129.4) (4,550.7) (7,187.8) 0.0 Taxation paid (1,493.2) (1,797.0) (2,142.2) (1,931.3) (2,239.7) 0.0 Cash flow from operations (684.0) 4, , ,146.8 (3,644.6) (6,156.0) Maintenance capex (1,409.2) (1,947.9) (2,276.9) (2,430.1) (2,599.3) (634.2) Discretionary cash flow from operations (2,093.2) 2, , ,716.7 (6,243.9) (6,790.1) Dividends paid (67.5) (4,254.6) (11,818.4) (67.5) (67.5) 0.0 Retained cash flow (2,160.8) (1,999.5) (8,591.6) 2,649.2 (6,311.5) (6,790.1) Net expansionary capex (10,113.2) (1,263.9) (2,111.5) (632.2) 1, Investments and other (16.7) (1.6) (16.7) Proceeds on sale of assets/investments Shares issued Cash movement: (increase)/decrease (753.6) (391.2) (3,707.0) 53.3 Borrowings: increase/(decrease) 11, , ,374.0 (1,675.0) 8, ,646.0 Net increase/(decrease) in debt 12, , ,620.4 (2,066.2) 4, ,699.4 Statement of financial position Ordinary shareholders interest 9, , , , , ,979.0 Outside shareholders interest Pref shares and conv debentures Total shareholders' interest 9, , , , , ,979.0 Current debt 13, , , , , ,909.1 Non-current debt 12, , , , , ,966.3 Total interest-bearing debt 25, , , , , ,875.4 Interest-free liabilities 8, , , , , ,814.2 Total liabilities 43, , , , , ,668.6 Property, Plant and Equipment 24, , , , , ,923.4 Investments and other non-current assets 1, , ,367.7 Cash and cash equivalent , , ,864.1 Other current assets 17, , , , , ,513.4 Total assets 43, , , , , ,668.6 Ratios Cash flow: Operating cash flow : total debt (%) neg neg neg Discretionary cash flow : net debt (%) neg neg neg Profitability: Turnover growth (%) Gross margin (%) EBITDA : revenues (%) Operating profit margin (%) EBITDA : average total assets (%) Return on equity (%) Coverage: Operating income : gross interest (x) Operating income : net interest (x) Activity and liquidity: Trading assets turnover (x) Days receivable outstanding (days) Current ratio (:1) Capitalisation: Net debt : equity (%) Total debt : equity (%) Net debt : EBITDA (%) Total debt : EBITDA (%) Depreciation used as a proxy for maintenance capex expenditure *Unaudited numbers Nigeria Corporate Analysis Public Rating Page 7

8 SALIENT POINTS OF ACCORDED RATINGS GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the ratings expire in April Dufil Prima Foods PLC participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The credit ratings were contested by Dufil Prima Foods PLC, but the rating appeal was not successful. The information received from Dufil to accord the credit rating included; 2016 audited annual financial statements (plus four years of comparative numbers), Strategy document on expansion industry comparative data and regulatory framework 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. ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR S PUBLIC WEB SITE AT PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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