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May 5, 2022/FSDH Research
Key Performance Highlights:
- Dangote Sugar reported a 40.1% YoY revenue growth to N94.4 billion in 1Q22 from N67.4 billion in 1Q21, primarily driven by the 39.8% rise in the 50kg Sugar revenue segment to N91.8 billion in 1Q22. The double-digit revenue growth was almost immediately offset, as the cost of sales shot up 52.0% YoY to N75.0 billion in 1Q22. The majority of the increase in the cost of sales is due to the rise in the raw material costs to N63.6 billion in 1Q22 from N39.9billion in 1Q21, resulting in a gross margin contraction of 617 bps YoY to 20.6% in 1Q22, from 26.8% in 1Q21.
- Other income dropped from N100 million to N69million in 1Q22, caused by a significant drop in the rental income to N24.8 million in 1Q22 from N188.0 million in 1Q21, coupled with a considerable reduction in grant income to N16.3 million in 1Q22 from N75.4 million. The company’s Selling and Distribution costs ballooned 110.2% YoY to N261 million in 1Q22. Administrative expenses rose a steady 5.0% YoY to N2.2 billion in 1Q22. Consequently, the company’s operating profit rose by 7.2% YoY to N17.0 billion in 1Q22.
- The finance costs rose a steady 2.7% YoY to N3.5 billion, primarily due to an increase in the exchange loss to N2.6 billion in 1Q22 from N2.3 billion in 1Q21. The investment income climbed to N810 million in 1Q22 from N127 million. Consequently, the net profit edged 6.8% YoY higher to N8.9billion in 1Q22. Earnings per share ascended to N0.73/share in 1Q22 compared to N0.68/share in 1Q21, a mere 6.8% YoY rise.
- For 1Q22, revenues from all segments reported a double-digit growth except Freight income, which slipped 9.8% YoY to N238 million. Sugar-50 kg (97.2% of 1Q22 revenue) revenue spurted 39.8% YoY, supported with a 30.7% YoY jump in Sugar- Retail revenue (1.7% of 1Q22 revenue). Molasses segment (0.9% of 1Q22 revenues) charged 234.6% higher to N814 million in 1Q22. In terms of geographical revenue distribution, the West reported the highest revenue growth with 90.6% YoY growth, followed by a 72.9% YoY growth in the North region. Lagos also reported a solid 24.3% YoY growth. However, the East region reported a sharp decline in revenue by 62.4% YoY.
- The company’s margins declined across the board in 1Q22. The gross margin suffered the most significant decline of 617 bps YoY to 20.6% in 1Q22. The company’s EBITDA margin also declined 561 bps YoY to 20.6% due to the increased cost of sales and selling expenses. The operating and net margin slumped 554 bps and 293 bps YoY to 18.0% and 9.4% in 1Q22, respectively.
- Separately, in mid-February, Dangote Sugar refuted the allegations by Bua Foods Plc. The company mentioned that it is aware of the media platforms, with Bua Foods alleging that DSR has suspended the sale of Sugar to create artificial scarcity and force prices to go up. The company vehemently refuted the allegations and assertions in their entirety and maintained that such false allegations are geared to mislead the market and may give an undue competitive edge to BUA. The company stated it is committed to fair play and good governance and would continue to supply Sugar to the market without interruptions.
Market Reaction: The investor reaction to the 1Q22 results was restrained as the stock closed unchanged at N16.20 versus a 0.98% gain in the All-Share Index (4/5).
Dangote Sugar Earnings Highlights 1Q22
Source: Company Financials, FSDH