May 2, 2024/Cordros Report
Dangote Sugar Refinery Plc (DANGSUGAR) released its Q1-24 unaudited financials after market close on Tuesday (30 April), reporting a loss per share of NGN5.68 (vs EPS of NGN1.05 in Q1-23) due to the combined impact of a 22.5x y/y increase in net exchange losses to NGN102.98 billion (Q1-23: NGN4.38 billion), higher cost of sales (+49.0% y/y), and OPEX (+24.9% y/y).
DANGSUGAR’s revenue grew by 20.1% y/y in Q1-24, driven by increases in all its product lines – 50kg Sugar (+18.5% y/y | 95.3% of revenue), Retail sugar (+84.2% y/y | 3.4% of revenue) and Molasses (+119.7% y/y | 1.2% of revenue) – save for Freight income (-77.4% y/y | 0.1% of revenue). The revenue growth in the period was primarily supported by higher prices. Across its business segments, revenue from the North (-22.6% y/y) and East (-8.3% y/y) were the only laggards, as the company recorded growth across its Lagos (+76.9% y/y) and Western (+3.4% y/y) segments. Sequentially, revenue declined by 6.8% q/q, attributed to lower demand after the festive period-induced consumption subsided.
Gross margin (-18.06 ppts y/y) plummeted to 7.1%, following a 49.0% y/y growth in the cost of sales. The increase in costs was mainly driven by rises in production costs from the cost of materials (+55.9% y/y) and direct overheads (+39.4% y/y). Indeed, the price of raw sugar was higher by 8.6% YTD. Consequently, EBITDA (-18.10ppts y/y) and EBIT (-18.09ppts y/y) margins contracted significantly to 6.6% and 4.3% in the quarter, respectively, amid a 24.9% y/y increase in operating expenses, owing to the currency devaluation in the period.
Net finance costs (+21.0x y/y) surged in the quarter, owing to a 22.5x y/y increase in net exchange losses to NGN102.98 billion (Q1-23: NGN4.38 billion) amid a higher interest charge (+410.3% y/y) on letters of credit.
Overall, DANGSUGAR posted a pre-tax loss of NGN106.86 billion in the quarter (vs. a pre-tax profit of NGN18.53 billion in Q1-23). Following a tax credit of NGN37.86 billion (vs. a tax expense of NGN5.73 billion in Q1-23), the loss after tax printed NGN68.99 billion (vs. a profit after tax of NGN12.80 billion in Q1-23).
Comment: While strategic price increases supported DANGSUGAR’s topline performance in Q1-24, margins and eventual earnings remained under pressure from rising costs and FX illiquidity challenges. Looking ahead, we anticipate an increase in sales volume along with additional price increases to further support top-line growth. While we maintain our expectations that the favourable demographics for sugar consumption will remain positive for DANGSUGAR’s performance, we believe challenges from rising costs and currency depreciation are likely to persist in the near term. Our estimates are under review.
