March 6, 2025/InvestmentOne Report

Dangote Sugar Refinery Plc delivered robust top-line growth in 2024 but faced significant profitability challenges due to surging costs and currency devaluation. Revenue jumped to NGN665.69 billion, up 50.80% YoY from NGN441.45 billion in 2023. This strong revenue performance reflects price increases and resilient demand, especially from industrial customers.

Meanwhile cost of sales also boosted to NGN634.58 billion compared to NGN355.15 billion, up 78.60% YoY. Cost of sales consumed 95.3% of revenue (up from 80.4% in 2023), reflecting a sharply higher cost structure as input prices (especially imported raw sugar) surged. Raw sugar is the largest component of cost (roughly 87% of total inputs), and its Naira cost almost doubled due to currency depreciation.

However, operating profit margins collapsed to 1.90% (from 16.47% in 2023) as costs escalated. NGN12.67 billion vs NGN72.69 billion, down 82.57% YoY. Selling, general and administrative expenses increased (administrative costs rose 42% YoY to NGN18.92 billion). In the face of these headwinds, Dangote Sugar has been focusing on efficiency initiatives. The company implemented margin management and cost management measures to mitigate the impact of forex volatility and inflation.

In line with revenue, finance costs rose to NGN293.67 billion from NGN191.10 billion in 2023, up 53.68% YoY. Finance charges skyrocketed due to higher interest expenses and massive foreign exchange losses from naira devaluation far outweighing finance income. The company incurred an estimated NGN207 billion exchange loss from revaluing these liabilities, which alone wiped out operating profits.

Furthermore, high interest rates and increased borrowing compounded the challenges. To finance its expansion and working capital, Dangote Sugar took on additional debt; intercompany loan of NGN117.5 billion was obtained in 2023 and a NGN200 billion bond programme was established in 2024. Coupled with the Central Bank’s tight monetary policy interest expense rose significantly.

The company’s finance charges for 2024 were over NGN301 billion (compared to NGN201 billion in 2023). These high financing costs, along with the FX losses, led to pre-tax losses despite the operating profit. Despite the measures taken by the organization losses further increased to NGN270.89 billion from NGN 108.92 billion as loss before tax widened by 148.70% YoY while net loss was also deeper by 161.14% YoY primarily attributable to the huge finance costs and forex losses incurred.

Balance Sheet: On the balance sheet, Total assets Increased 20.69% to NGN725.23 billion, up from NGN600.79 billion in 2023. The rise in total assets was primarily due to a revaluation surplus on assets, particularly in property, plant, and equipment, as the company enhanced its refining and backward integration capacities. Lower in the books, Non-current assets Rose 71.03% to , largely driven by an increase in deferred tax assets by NGN102.51 billion, alongside additions to plant and equipment.

In the liabilities segment, total liabilities: Declined slightly by 1.64% to NGN512.99 billion, from
NGN521.54 billion, reflecting better management of outstanding obligations despite increased short-term borrowings. Meanwhile current liabilities increased 75.72%, driven by a commercial
paper issuance to support working capital (NGN141.34 billion) and Short-term bank overdraft facilities (NGN25.36 billion). Equities rebounded strongly, turning positive at NGN212.23 billion by year-end 2024, compared to a negative NGN64.7 billion earlier in the year.

Outlook: Management has indicated it is exploring strategies to reduce finance costs, such as refinancing expensive short-term debt and leveraging support from the parent group, to improve the capital structure. We continue to expect the organization to expand on its BIP in its quest to reduce costs. In the long run we suggest a SELL recommendation as the organization continues to battle with costs. Despite these efforts, we maintain a SELL recommendation for the long term, as the organization faces persistent cost management issues. However, the recent foreign exchange regulatory changes may provide some relief, potentially enabling the organization to better adapt to the current economic environment.

Please click here to download full report.