Dangote Sugar Sustains Growth Despite Increasing Finance Cost

Darasimi Adebisi
Dangote Sugar refinery sustained growth in profit before tax and profit after tax amid hiker in finance cost in its unaudited result and accounts for half year (H1) ended June 30, 2021.

The sugar processing company last week released its unaudited result and accounts for H1 2021 with growth in revenue, but hike in finance cost reduced its profits.
The company revenue rose by nearly 28 per cent to N131.96billlion in H1 2021 from N103.23billion reported in H1 202.
Dangote Sugar refinery was able to grow its revenue on the backdrop of growth from the sale of 50kg sugar and molasses.

The sale of 50kg Dangote sugar closed H1 2021 at N128.4billion from N98.33billion reported in H1 2020 while revenue from the sale of sugar-Retail dropped by 40 per cent to N2.35billion in H1 2021 from N3.88billion in H1 2020.
The gain in 50kg of Dangote sugar was primarily driven by price implemented in second quarter (Q2) of 2021 as decline in retail sugar of the company is the highest quarterly decline in at least 18 quarters

In addition to revenue, the company report revenue from the sale of molasses at N667.99million in H1 2021 from N390.07million in H1 2020.
Also, Freight income was down by nearly 10 per cent to N571.36million in H1 2021 from N634.32million in H1 2020.

Geographical breakdown of Dangote Sugar revenue revealed that Northern part of the country reported highest revenue, followed by West.
Revenue reported by Dangote Sugar in the Northern part of the country rose by 36 per cent to N52.42billion in H1 2021 from N38.54billion in H1 2020 while revenue reported in Western region of the country gained 39 per cent to N13.36billion in H1 2021 as against N9.64billion in H1 2020.

Lagos state recorded highest value of revenue in H1 2021, closing at N60.57billion, about 27 per cent increase when compared to N50.16billion reported in H1 2020.
Nigerian Bottling Company Limited and Seven Up Bottling Company Limited operating from Lagos are the two customers who buy industrial non-fortified sugar that represents more than 10per cent of total sales during the period.

The company this year might sustained growth in revenue on the heels of Central Bank of Nigeria (CBN) policy that licensed three firms to exclusively import sugar into Nigeria.
The approval of the import license is in line with the federal government National Sugar Master Plan.

It tends to encourage and incentivize sugar refining companies in their backward integration programme for local sugar production followed a review of the three companies’ achievement of reasonable progress on the policy in the sector.

Under the Nigerian Sugar Master Plan by the Federal Government through the National Sugar Development Council, the CBN is mandated to monitor the implementation of the backward integration programmes of all the companies.

However, Cost of sales for period rose by 25.4 per cent to N103.36billion from N82.41billion in H1 2020, driven primarily by 36 per cent growth in raw materials and 29 per cent increase in freight expenses respectively.

Included in freight expenses is the depeciation charge on the company’s fleet of trucks.
Interplay between revenue and cost of sales position Dangote Sugar’s gross profit to N28.59billion in H1 2021, 37.3 per cent increase from N30.82billion reported in H1 2020 as gross margin moved from 20.2 per cent in H1 2020 to 21.7 per cent in H1 2021.
Consequently, cost-to-sales ratio closed H1 2021 at 78.3 per cent from 79.8 per cent in H1 2020

However, total operating expenses rose by 36.6 per cent to N5.24billion in H1 2021 from N3.8billion in H1 2020, mostly driven by administrative expenses that gained 41.4 per cent to N4.95billion from N3.5billion reported in H1 2020.
Dangote sugar’s selling and distribution expenses appreciated by 13.5 per cent to N288.8million in H1 2021 from N333.99million in H1 2020.

Further performance in profit & loss figures brings operating profit at H1 2021 at N23.48billion compared to N17.4billion reported in H1 2020.
Meanwhile, the company’s Net finance cost stood at a negative of N4.8billion in H1 2021 relative to a N1.48billion in H1 2020.

The surge in finance cost was mainly driven by an increase in foreign exchange loss that rose by 112.4 per cent to N2.79billion in H1 2021 from N1.3billion in H1 2020, following the currency devaluation within the period.

About N1.86billion finance cost on Letter of Credit also contributed to hike in net finance cost of Dangote Sugar refinery in the period.
None-core business income, thus dropped by 68.5 per cent to N128.91million in H1 2021 from N409.68million reported in H1 2020.

Double-digit growth in profit
Dangote Sugar refinery reported double-digit increase in profit before tax in the period under review to N18.76billion from N17.04billion reported in H1 2020.
The company paid a tax of N6.15 billion in H1 2021 from N5.46billion in H1 2020 to dragged profit after tax to N12.61 billion, 8.85 per cent higher when compared to N11.58 billion reported in H1 2020.

On the flip side, profit before tax declined by 9.7per cent y/y to N6.81 billion in second quarter of (Q2 2021) from N7.54 billion reported in Q1 2020, while Profit after tax fell faster by 17.4 per cent y/y following a 7.8per cent y/y increase in tax expense.
Dangote sugar refinery’s reported N283.87billion in total assets as at June 30, 2021 from N278billion reported in full year ended December 31, 2020, was driven by growth in trade and other receivables.

Trade and other receivables closed H1 2021 at N48.64billion from N36.07billion in H1 2020.
The breakdown of total assets revealed that long-term assets rose by 14.3 per cent to N116.26billion as at June 30, 2021 from N101.73billion reported in H1 2020 while current assets dropped by nearly five per cent to N167.6billion as at June 30, 2021 from N176.3billion reported in 2020 full year results.

Meanwhile, total liabilities of Dangote sugar refinery was N164.78billion as at June 30, 2021, an increase of 7.5 per cent from N153.32billion in 2020.
The company’s total equity dropped by 4.5 per cent to N119.1billion as at June 30, 2021 from N124.7billion reported in 2020.

Analysts View
Commenting on the company’s performance, analysts at Cordros Research said the company has maintained its double-digit top-line growth trajectory for eight consecutive quarters despite implementing a substantial price increase.

The Lagos-based research firm noted that the reopening of land borders did not affect the company’s sales volume adversely, which implies a limited influx of unlicensed sugar into the country.

According to the analysts, “However, the persistent increase in operating and finance cost remains a concern. Nevertheless, over the rest of 2021 financial year, we believe the company will maintain positive performance given its market leadership position and substantial progress in its backward integration programme despite renewed competition in the sugar industry.”

Commenting on the Company’s first quarter 2021 performance, the Group Managing Director/CEO, Ravindra Singhvi said had : “The health and safety of our people and partners remain our priority. Our refineries in Apapa and Numan continue to operate ensuring the health and safety protocols are upheld and our commitment to the environment is sustained. We have experienced improved yield from our sugar cane plantations and continue to partner with our outgrowers for the supply of sugar cane for production.

“Amidst the protracted socio-economic uncertainties occasioned by the COVID-19 pandemic and heightened insecurity during the quarter under review, we have continued on the growth path, as our talented and dedicated team have enabled us to mitigate some of the adverse impacts of the worsening traffic gridlock in Apapa and other macroeconomic headwinds. We remain committed to the implementation of the “Dangote Sugar for Nigeria” Master plan as we continue to pursue our Backward Integration Projects.”

He added, “Dangote Sugar Refinery is Nigeria’s largest producer of household and commercial sugar with 1.44M MT refining capacity at the same location. Refinery located at Apapa Wharf Ports Complex, refines raw sugar imported from Brazil to white, Vitamin A fortified refined granulated white sugar suitable for household and industrial uses.

“Our Backward Integration goal is to become a global force in sugar production, by producing 1.5M MT/PA of refined sugar from locally grown sugar cane for the domestic and export markets.”