October 31, 2023/Cordros Report

Dangote Sugar Refinery Plc (DANGSUGAR) released its Q3-23 unaudited financials yesterday (30 October), reporting standalone EPS of NGN0.08 (Q3-22: NGN0.38) pressured by a substantial increase in cost of sales (+19.2% y/y) and expenses (+18.0% y/y) relative to revenue (+4.0% y/y). On the whole, 9M-23 loss per share came in at NGN2.23 (9M-23 EPS: NGN2.04), highlighting the effects of the substantial FX loss in H1-23.
 
DANGSUGAR’s revenue increased meagerly by 4.0% y/y in Q3-23 (9M-23: +7.4% y/y), following a slow growth in the company’s dominant segment, 50kg Sugar (+3.6% y/y | 97.1% of revenue). In the same vein, the producer recorded growth across its other business segments – Retail sugar (+27.0% y/y | 2.5% of revenue) and Molasses (+45.5% y/y | 0.4% of revenue) –, save for the Freight income (-77.7% y/y | 0.1% of revenue) segment. Across its geographical footprint, DANGSUGAR recorded growth in Northern (+11.4% y/y) and Western (+4.0% y/y) sales while sales in the Eastern (-16.4% y/y) and Lagos (-1.5% y/y) regions declined.

Gross margin (-12.05 ppts y/y) declined to 6.0%, as the faster growth in cost of sales (+19.2% y/y) outweighed the increase in revenue (+4.0% y/y). The higher cost of sales highlights the effects of inflationary pressures and FX illiquidity issues on raw materials (+21.2% y/y), direct labour (+29.8% y/y) and overheads (+27.5% y/y). Consequently, EBITDA (-10.44 ppts) and EBIT (-11.63 ppts) margins decreased to 5.2% and 3.7% in the quarter, respectively, further propelled by an 18.0% increase in operating expenses.

Net finance costs (+57.8% y/y) remained elevated, driven by a 54.8% y/y increase in finance costs, with finance income also growing markedly by 38.0% y/y in the period. We attribute the significant rise in finance costs to the higher interest cost on Letters of Credit (LoC). For context, the finance costs LoC in Q3-23 settled at NGN10.13 billion (Q3-22: NGN3.20 billion).

Overall, pre-tax loss came in at NGN9.96 billion in Q3-23 (vs PBT of NGN6.54 billion in Q3-22). Following a tax credit of NGN10.92 billion, profit after tax printed NGN960.19 million in Q3-23 (-79.1% y/y).

Comment: DANGSUGAR’s Q3-23 result fell short of expectations, as this performance heightens our concerns on the food producer’s weak performance in 2023 amid the impact of the FX devaluation on its bottom-line. While we expect the festive-induced demand to support performance in Q4-23, we believe earnings will remain subdued following the subpar outing in the 9M period. Our estimates are under review.