July 31, 2024/Cordros Report

Dangote Sugar Refinery Plc (DANGSUGAR) released its Q2-24 unaudited financials yesterday (30 July), reporting a standalone loss per share of NGN6.17 (vs loss per share of NGN3.35 in Q2-23), resulting in a higher loss per share of NGN11.85 for H1-24 (H1-23: NGN2.30). The elevated costs of sales (+140.0% y/y) and higher net finance cost (+36.1% y/y) in the period underpinned the loss.
 
DANGSUGAR’s revenue increased by 71.9% y/y in Q2-24 (H1-24: +45.8% y/y), supported by increases across its 50kg Sugar (+197.5% y/y | 96.1% of revenue), Retail sugar (+140.0% y/y | 2.9% of revenue), Molasses (+190.7% y/y | 0.9% of revenue) business segments. Meanwhile, Freight income (0.1% of revenue) declined by 52.3% y/y. Revenue growth was also observed across all geographic regions: Lagos (+250.4% y/y | 60.9% contribution), North (+141.5% y/y | 27.9% contribution), West (+119.5% | 8.1% contribution) and East (+122.1% y/y | 3.1% contribution). We highlight that the revenue expansion in the period was primarily due to price increases in response to rising cost pressures. On a q/q basis, revenue grew remarkably by 40.9% y/y, driven by higher 50kg Sugar (+143.0% y/y) sales in the quarter.
 
Gross margin declined by 268bps y/y to 5.4%, reflecting the sharp increase in the cost of sales (+140.0% y/y) relative to revenue (+71.9% y/y). A detailed analysis of the cost line shows significant increases in raw materials (+146.1% y/y | 86.3% of cost of sales) and direct overheads (+121.3% y/y | 7.6% of cost of sales), due to the high inflationary environment and naira devaluation. Consequently, EBITDA (-322bps y/y) and EBIT (-262bps y/y) margins contracted to 4.8% and 2.9% in the quarter, respectively, amid a 37.3% increase in operating expenses.
 
Net finance costs grew by 36.1% y/y to NGN109.31 billion in the quarter (Q2-23: NGN80.33 billion), due to a 35.2% y/y increase in finance cost. The higher finance cost was primarily due to a 15.2% y/y rise in FX losses and a 256.3% y/y surge in interest expenses on letters of credit.
 
Overall, DANGSUGAR recorded a pre-tax loss of NGN104.56 billion in Q2-24 (vs pre-tax loss of NGN49.90 billion in Q2-23). Following a tax credit of NGN29.55 billion, loss after tax printed NGN75.01 billion in Q2-24 (vs loss after tax of NGN40.79 billion in Q2-23).
 
Comment: DANGSUGAR’s profitability was negatively impacted by naira depreciation and high inflation, similar to other non-financial companies in Nigeria. While we anticipate continued revenue growth from price increases and improved trade volumes, high import prices for raw materials and elevated operating expenses are likely to persist over H2-24. Consequently, we still anticipate negative earnings in 2024E, driven by FX losses and high input and operating costs. Our estimates are under review.