FSDH Initial Reaction: Dangote Sugar 1Q23 results 
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May 2, 2023/FSDH

Key Performance Highlights:

• Dangote Sugar reported a solid set of numbers for 1Q23. The company’s revenue rose 8.2% YoY to N102.2 billion in 1Q23 from N94.4 billion in 1Q22, primarily driven by a 7.5% YoY rise in the 50kg Sugar revenue segment to N98.7 billion, supported by a 42.5% YoY jump in the retail sugar revenue to N2.3 billion in 1Q23. On the contrary, the company’s cost of sales grew merely by 2.0% YoY to N76.5 billion in 1Q23. The cost of sales mainly increased due to the rise in direct overheads and freight expenses. The solid revenue growth coupled with a less than proportionate increase in the cost of sales resulted in 458 bps YoY gross margin expansion to 25.2% in 1Q23, from 20.6% in 1Q22.
   
• Other income increased 6.7% YoY to N73 million in 1Q23 versus N69 million in 1Q22 due to insurance claim income. The company’s selling and distribution costs declined 33.1% YoY to N175 million compared to N261 million in 1Q22. However, due to increased employee costs and management fees, administrative expenses were up 22.6% YoY to N2.8 billion in 1Q23 versus N2.2 billion in 1Q22. Consequently, the company’s operating profit rose 34.5% YoY to N22.9 billion in 1Q23 versus N17.0 billion in 1Q22.
   
• Furthermore, the finance income vaulted 218.5% YoY to N2.6 billion due to higher interest income on bank deposits. On the other hand, the finance costs also jumped 129.9% YoY to N8.1 billion, primarily due to an increased cost on the letter of credit and exchange losses. Additionally, the company reported a fair value gain on biological assets of N1.1 billion in 1Q23, compared to a loss of N0.7 billion. The company recorded an effective tax rate of 30.9% in 1Q23 versus 34.8% in 1Q22. Consequently, Dangote Sugar reported a net profit of N12.8 billion in 1Q23, a massive 44.3% YoY growth. Earnings per share ascended to N1.05/share in 1Q23 compared to N0.73/share in 1Q22.
   
• For 1Q23, revenues from all segments reported positive growth except for the molasses segment. Sugar-50 kg (96.5% of 1Q23 revenue) revenue was up 7.5% YoY, Sugar-Retail was up 42.5% YoY (2.2% of 1Q23 revenue), and the Freight income (0.6% of 1Q23 revenues) rose 163.8% YoY to N628 million in 1Q23. However, the molasses segment (0.7% of 1Q23 revenues) decreased 19.0% YoY to N659 million. Regarding geographical revenue distribution, revenue growth from the North was 8.1% YoY, generating N49.4 billion in revenues. Lagos sales generated N41.2 billion (+14.6% YoY), and the revenue from East sales was N3.5 billion (+42.4% YoY). However, the revenue from the West declined 21.6% YoY to N8.1 billion.
   
• The company’s margins expanded across the board in 1Q23 due to solid sales growth and effective cost controls. The gross margin experienced the maximum expansion of 458 bps YoY to 25.2% in 1Q23. The company’s net margin grew 313 bps YoY to 12.5%, and the EBITDA margin expanded 407 bps YoY to 24.7% in 1Q23.
   
• Looking at the sequential performance, Dangote Sugar reported an 11.1% QoQ revenue decline in 1Q23. Although the cost of sales was down 4.9% QoQ to N76.5 billion in 1Q23 against N80.4 billion in 4Q22, the gross profit contracted 25.4% QoQ to N25.8 billion from N34.5 billion in 4Q22, resulting in a margin contraction of 485 bps QoQ to 25.2% in 1Q23. The company managed to control the cost, with administrative costs declining 6.5% QoQ and finance costs decreasing 40.2% QoQ. However, finance income dropped 89.8% QoQ to N2.6 billion in 1Q23 compared to N24.4 billion in 4Q22. Consequently, the net profit decreased by 57.2% QoQ to N12.8 billion in 1Q23 versus N29.9 billion in 4Q22.
   
• On 13 March 2023, the Board of Directors announced the appointment of Mrs. Yabawa Lawan Wabi (mni) as an Independent Non-Executive Director on the Board of the Company.

Market Reaction: The investor reaction to the solid 1Q23 results was buoyant as the Dangote Sugar stock popped 5.69% to N19.50, versus a 0.32% gain for the All-Share Index (28/4). However, the stock closed 1.03% lower, against 0.20% fall for the All-Share Index (2/5).

Dangote Sugar Earnings Highlights 1Q23

Source: Company Financials, FSDH