FSDH Initial Reaction: Dangote Sugar 1Q24 results 
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May 3, 2024/FSDH Research

Key Performance Highlights:

• Dangote Sugar reported handsome revenue growth of 20.1% YoY to N122.7 billion in 1Q24, powered by an 18.5% YoY rise in the 50kg sugar revenue to N116.9 billion in 1Q24, further supported by an 84.2% YoY jump in the retail sugar revenue to N4.2 billion in 1Q24. However, the Company’s Cost of sales soared 49.0% YoY to N114.0 billion in 1Q24 owing to increased raw material prices. As the Cost of sales grew higher relative to the revenues, gross profit fell 66.0% YoY to N8.8 billion with an 1,806 bps YoY gross margin contraction to 7.1% in 1Q24 from 25.2% in 1Q23.
   
• Other income dropped 28.2% YoY to N52 million in 1Q24 versus N73 million in 1Q23, mainly due to lower insurance claim income. The selling and distribution costs declined 13.4% YoY to N151 million compared to N175 million in 1Q23. However, due to increased employee costs, management fees, and bank charges, administrative expenses vaulted 27.4% YoY to N3.5 billion in 1Q24 versus N2.8 billion in 1Q23. Consequently, the operating profit fell 76.9% YoY to N5.3 billion in 1Q24 versus N22.9 billion in 1Q23. Moreover, the operating margin contracted 1809 bps YoY to 4.3% in 1Q24 from 22.4% in 1Q23.
   
• Furthermore, the finance income decreased 26.7% YoY to N1.9 billion in 1Q24 due to lower interest income on bank deposits, while the finance costs skyrocketed 15.2x to N122.5 billion in 1Q24, primarily due to FX losses and an increased cost on the letter of credit. Consequently, Dangote Sugar reported a net loss before tax of N106.9 billion in 1Q24, compared to a profit of N18.5 billion in 1Q23. Despite reporting a N37.9 billion income tax credit versus a N5.7 billion income tax expense in 1Q23, Dangote Sugar recorded N69.0 billion net loss in 1Q24 versus N12.8 billion net profit in 1Q23. The Company’s loss per share came in at N5.68/share in 1Q24 versus N1.05 earnings per share in 1Q23.
   
• In 1Q24, all the segments continued to report positive growth except for the freight income segment. Sugar-50 kg revenue (95.3% of 1Q24 revenue) was up 18.5% YoY to N116.9 billion, Sugar-Retail (3.4% of 1Q24 revenue) was up 84.2% YoY to N4.2 billion, and the Molasses income (1.2% of 1Q24 revenues) rose 119.7% YoY to N1.4 billion in 1Q24. However, the freight income (0.1% of 1Q24 revenues) decreased 77.4% YoY to N142 million. Looking at geographical revenue break-up, Lagos sales generated N72.9 billion (+76.9% YoY), and the revenue from the West grew 3.4% YoY to N8.3 billion in 1Q24. However, the revenue from the North decreased 22.6% YoY, generating N38.2 billion in revenues, and the revenue from the East shrank 8.3% YoY to N3.2 billion in 1Q24.
   
• Looking at the sequential performance, revenue declined 6.8% QoQ, while the Cost of sales marginally increased by 3.5% QoQ, resulting in a 59.6% QoQ fall in the gross profit to N8.8 billion from N21.6 billion in 4Q23, resulting in a gross margin contraction of 930 bps QoQ to 7.1% in 1Q24 vs. 16.4% in 4Q23. Although the administrative expenses (down 15.7% QoQ) and selling & distribution expenses (down 18.2% QoQ) dropped, the Company witnessed a 31.8% QoQ rise in finance costs due to foreign exchange losses in 4Q23. Moreover, finance income declined 42.9% QoQ to N1.9 billion in 1Q24 compared to N3.3 billion in 4Q23. Ultimately, Dangote Sugar’s net loss widened 47.6% QoQ to N69.0 billion in 1Q24 versus N46.7 billion in 4Q23.

Market Reaction: The investor reaction to the 1Q24 results was positive as the Dangote Sugar stock popped 9.90% to N42.75 versus a 0.55% rise for the All-Share Index (2/5). Moreover, the stock further rose 9.94% to N47.00 versus a 0.83% gain for the All-Share Index on 3/5.

Dangote Sugar Earnings Highlights 1Q24

Source: Company Financials, FSDH