Dangote Sugar makes highest profit in 7 years as sales improve

Dangote Sugar Refinery, a subsidiary of the Dangote Group and the second largest food & beverage industry in the consumer goods sector as listed on the Nigerian Stock Exchange (NSE) raked in its highest profit in 7 years with 81 percent increase to N26.63 billion within the first nine months of 2020 from N14.7 billion for the same period in 2019.

The profit growth in Q3 2020 was an astonishing recovery from the 12 percent decline in net profit to N14.7 billion in the 9-month period of 2019 from the N16.7 billion recorded in the first 9-months of 2018.

Although cost of goods sold increased by a higher proportion of 42.9 percent to N126.37 billion in the first 9-months of 2020 from N88.4 billion in the same period of 2019, revenue rose by 36.7 percent to N160.5 billion from N117.4 billion within the period observed, surpassing cost in value terms.

This means that Dangote Sugar’s revenue grew by a value of N43.1 billion outpacing cost of N37.96 billion between 2019 and 2020 on a 9-months basis.

Source: NSE

Ayorinde Akinloye, a Research Analyst at CSL Stockbrokers stated that the profit jump of Dangote Sugar between January to September 2020 was a result of a combination of factors: strong revenue growth triggered by improved demand, increased prices across all products, and higher tax credit of N3 billion compared to its N2.3 billion tax payment in Q3 2020.

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“Smuggling activities were greatly minimised due to the border closure enacted in October 2019 and this helped Dangote Sugar to regain some of its market share.

“Also, earlier in 2020, the Federal Government of Nigeria (FGN) reversed the prior increase of import duty, which as at 2019 was increased from 5 to 10 percent,” said Akinloye.

In line with this, Abiola Gbemisola, a research analyst at Chapel Hill Denham, emphasised that smaller companies were previously importing sugar but the border closure in August 2019 limited sugar supply which increased sugar price.

“For instance, 50kg sugar was formerly selling at N13,500 to market suppliers but by the end of 2019, it had escalated to N17,000 and further skyrocketed to N20,000 at the beginning of 2020”, said Gbemisola.

“Gbemisola also stated that “the border closure has largely increased the volume of sugar tonnes being sold as the foreign competition has been reduced.”

Also, BusinessDay analysis showed that the increased profit for the period under review was partly driven by the “fair value adjustment biological assets” comprising growing cane which is expected to be harvested as agricultural produce meant for sugar production.

This biological assets valuation yielded an attractive sum of N2.6 billion in contrast to the losses of N443.2 million recorded within the first nine months of 2019.

Notwithstanding the perils that threatened to overshadow the nation in the form of the COVID-19 induced pandemic which triggered a four-month lockdown that temporarily stifled economic activities as cost of raw materials escalated, Dangote Sugar appears to have come out stronger with gross profit of N34.15 billion in 2020, a 17.7 percent rise from N29 billion in 2019 on a 9-month basis.

Likewise, profit before tax (PBT) rose by 26.6 percent to N29 billion within the first nine months of 2020 from N22.97 billion in the same period of 2019.

Despite the 11 percent growth in administrative expenses to N6.3 billion in 2020 from N5.6 billion in 2019 on a 9-month basis, selling and distribution expenses reduced by 18 percent to N496.5 billion from N606.95 billion in the same period.

In the same vein, on quarterly basis, this popular household name in Nigeria’s fast-moving consumer goods (FMCGs) sector saw its net profit skyrocket by 303.8 percent to N15.05 billion in Q3 2020 from N3.73 billion in Q3 2019.

Meanwhile, gross profit rose by 68.5 percent to N13.3 billion in Q3 2020 from N7.9 billion in Q3 2019 and PBT increased by 103 percent to N12 billion from N5.9 billion for the same period.

Also, revenue grew by a faster pace of 54.6 percent to N57.28 billion in Q3 2020 from N37.1 billion in Q3 2019 whereas cost increased by 50.8 percent to N43.96 billion from N29.16 billion within this period.

Similarly, net profit grew by 189 percent to N15 billion in Q3 2020 when compared with N5.2 billion in Q2 2020 while gross profit rose by 64 percent to N13.3 billion from N8.1 billion for this period.

This profit increase was driven by revenue rising at a faster pace of 3 percent to N57.28 billion in Q3 2020 from N55.59 billion in Q2 2020 as against cost which dropped by 7 percent to N43.96 billion from N47.49 billion in the same period.

Dangote Sugar also saw a 76.7 percent growth in its earnings per share to N2.19 in the first nine months of 2020 from N1.24 in the same time frame for 2019.

In terms of future projections, there is optimism that Dangote Sugar Refinery’s growth will likely continue.

Gbemisola highlights that this trend could be sustained except the Nigerian government opens up the border, or more competitors enter the sugar industry and as long as smugglers do not find a way to bring in their products into the country.