In line with the declining pattern over FY 14, opex contracted 20.5% YoY to N2.2 billion with a corresponding 12pps YoY decline in opex-to-sales at 19.8%. Aided by other operating income (FQ1 15: N6.4 million; FQ1 14: nil), pro-forma operating loss contracted 57.3% YoY to –N935 million. Adjusting for the impact of USDNGN devaluation which DFM estimates at N1.29 billion, operating losses are 1.5% higher YoY at N2.23 billion.
FQ1 15 finance costs rose 10.2% YoY to N762 million largely driven by 48.5% YoY surge in ST borrowings to N31.77 billion amid 56% YoY decline in LT borrowings to N3.76 billion. Consequently, FQ1 15 pre-tax loss and post-tax loss widened, rising 10.3% and 12% YoY to N2.99 billion and N2.92 billion respectively.
Given subdued consumer income and tight competition in the milling industry, trends in volumes should continue to underpin revenue trajectory. The sustained improvement in top-line suggests new management is making inroads in its re-structuring program for DFM which has seen the moth-balling of some plants. Whilst commodity price outlook remains benign, risk of further devaluation remain a key source of earnings compression over the rest of FY 15.
DFM trades at a current P/B of 2.36x vs. a mean of 2.89x for its Bloomberg African peers. Our rating for DFM is currently under review.