Flour Mills of Nigeria to cut capex as economy falters

LAGOS (Reuters) – Flour Mills of Nigeria expects to cut capital expenditure by almost half this year, down from 40 billion naira a year ago, as the slowdown in the economy, caused by the oil price collapse and the weakening naira, hurts consumer spending.

Chairman John Coumantaros told Reuters Africa Investment Summit that Flour Mills had spent around $750 million over the past 3-5 years to build capacity but would expected to spend around 19 billion naira ($95.53 million) this year, from cash flows and development loans.

A year ago, Flour Mills had planned to invest $1 billion over the next 3-5 years to fund growth and expand into West Africa.

But Coumantaros said the company with a focus on food processing, agriculture and logistics, was shifting focus to driving efficiencies and cutting cost to deliver growth.

Nigeria expects to lower its forecast for 2015 economic growth again, after cutting its forecast to 5.54 percent in January, as oil prices fell and the naira weakened further last month.

“Rather than growing, investing and expanding, we now have to look inwards,” Coumantaros said.

Revenue for the manufacturer of pasta, flour, vegetable oil and livestock feed grew 10-15 percent over the last five years. He expected that growth rate to continue this year largely due to the inflationary effect of a weaker naira.

Shares in Flour Mills have shed 10.7 percent so far this year, outperforming the drop in the main share index, down 11.6 percent.

Coumantaros was bearish on the outlook for the naira currency, but said he expected the fall to enable Nigeria reduce reliance on imports and consume goods made at home, an advantage for Flour Mills.

Flour Mills’ reported half-year results in November, with profits down 21.3 percent to 5.77 billion naira. Revenues also fell to 165.54 billion naira.

“We’ve definitely seen the spending power of the consumer slow … in certain areas like biscuits … when one tries to increase prices there is a corresponding drop in demand.”

Coumantaros said his firm, set up more than 50 years ago in Nigeria, was on track with its expansion plan into the rest of Africa over the 3-5 year period in order to tap into a greater population on the continent and diversify revenues.

($1 = 198.9000 naira)

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