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

Key Performance Highlights:

• Dangote Sugar reported strong operating numbers for 2Q23. The Company’s revenue rose 10.5% YoY to N100.6 billion in 2Q23 from N91.0 billion in 2Q22, primarily driven by a 95.5% YoY rise in the retail sugar revenue segment to N3.6 billion, supported by a 9.3% YoY jump in the 50kg sugar revenue to N95.5 billion in 2Q23. On the contrary, the Company’s cost of sales dropped by 4.9% YoY to N68.1 billion in 2Q23. The solid revenue growth coupled with a marginal drop in the cost of sales resulted in a 1099 bps YoY gross margin expansion to 32.3% in 2Q23, from 21.3% in 2Q22.
   
• Other income decreased by 69.2% YoY to N72 million in 2Q23 versus N233 million in 2Q22. The Company’s selling and distribution costs jumped 19.4% YoY to N129 million compared to N108 million in 2Q22. However, due to increased employee costs and management fees, administrative expenses were up 28.9% YoY to N3.0 billion in 2Q23 versus N2.4 billion in 2Q22. Consequently, the Company’s operating profit vaulted 71.4% YoY to N29.3 billion in 2Q23 versus N17.0 billion in 2Q22.
   
• Furthermore, the finance income surged 99.3% YoY to N2.3 billion due to higher interest income on bank deposits. On the other hand, the finance costs also jumped 21.7x YoY to N82.6 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 2Q23, compared to a gain of N1.7 billion in 2Q22. Consequently, Dangote Sugar reported a net loss of N40.8 billion in 2Q23, compared to a profit of N11.7 billion in 2Q22. Loss per share came in at N3.36/share in 2Q23 compared to an earning of N0.94/share in 2Q22.
   
• For 2Q23, revenues from all segments reported positive growth except for the freight income segment. Sugar-50 kg (95.0% of 2Q23 revenue) revenue was up 9.3% YoY to N95.5 billion, Sugar-Retail was up 95.5% YoY (3.6% of 2Q23 revenue) to N3.5 billion, and the Molasses income (0.9% of 2Q23 revenues) rose 43.6% YoY to N880 million in 2Q23. However, the freight income segment (0.6% of 2Q23 revenues) decreased 50.5% YoY to N561 million. Regarding geographical revenue distribution, revenue from the North was down 13.4% YoY, generating N34.1 billion in revenues. Lagos sales generated N51.4 billion (+20.8% YoY), and the revenue from East sales was N4.0 billion (+3.7% YoY). The revenue from the West showed staggering growth, with a 113.7% rise YoY to N10.9 billion.
   
• The Company’s margins expanded across the board in 2Q23 (except for net margin) due to solid sales growth and effective cost controls. The EBITDA margin experienced the maximum expansion of 1103 bps YoY to 31.7% in 2Q23. The Company’s gross margin grew 1099 bps YoY to 32.3%, and the Operating margin expanded 1036 bps YoY to 29.1% in 2Q23.
   
• Looking at the sequential performance, Dangote Sugar reported a 1.6% QoQ revenue decline in 2Q23. The cost of sales was down 10.9% QoQ to N68.1 billion in 2Q23 against N76.5 billion in 1Q23, and the gross profit vaulted by 26.0% QoQ to N32.4 billion from N25.8 billion in 1Q23, resulting in a margin expansion of 707 bps QoQ to 32.3% in 2Q23. The Company managed to control the cost, with selling and distribution expenses declining 26.1% QoQ. However, the Company witnessed a 10.2x rise in finance costs, mainly driven by foreign exchange losses in 2Q23. Finance income dropped 12.2% QoQ to N2.3 billion in 2Q23 compared to N2.6 billion in 1Q23. Consequently, a net loss of 40.8 billion was reported in 2Q23 versus a profit of N12.8 billion in 1Q23.

Market Reaction: The investor reaction to the 2Q23 results was tepid as the Dangote Sugar stock declined 10.0% to N27.00, versus a 1.10% loss for the All-Share Index (31/7).

Dangote Sugar Earnings Highlights 2Q23

Source: Company Financials, FSDH