An improving economy has generally meant expanding profit margins for Dangote Sugar Plc in recent times.
Nigeria’s top sugar producer, owned by Africa’s richest man, Aliko Dangote, recorded the strongest margin expansion by any Nigerian manufacturer.
Margins expansion means a firm is efficient in translating top line impressive (sales) performance into bottom line growth (profit).
Gross profit margins (GPM) increased to 26.87 percent in December 2017 from 15.98 percent the previous year.
This means Dangote Sugar has more money left over, after paying for production, to cover operations, expansion, debt repayment, and many other business expenses.
Net margin, a measure of efficiency more than double to 19.18 percent in December 2017 from 8.12 percent as at December 2016. This means the producer sweetener has utilized each naira collected in sales in generating higher profit.
It is generally accepted that there are relationship between economic growth and margins recorded by companies.
In the case of Nigeria, the relaxation of the foreign exchange restrictions by the apex bank and the subsequent introduction of the Investors’ and Exporters’ (I&E) window made it easy for manufacturer to have access to dollars needed to import raw materials.
“As companies begin to recover, we’re seeing an increase in what they buy from us, “Confectioneries, bakeries and beverage companies have increased their demand,” said Abdullahi Sule MD/ CEO of Dangote Sugar Refinery, in an interview with Bloomberg.
The gross domestic product of Africa’s largest oil producer expanded for three straight quarters last year after a 1.6 percent contraction in 2016, with year-on-year growth reaching 1.9 percent in the final three months of 2017.
Manufacturing Purchasing Managers’ Index (PMI) for March closed at 56.7 index points as business activities in the country continued to grow, according to a recent report by Central Bank of Nigeria (CBN).
Dangote Sugar Refinery sales spiked by 19.78 percent to N204.42 billion from N169.72 billion as at December 2017; driven by price increases across key products.
However, sales volumes continued to be beleaguered by continued disruptions at the Apapa refinery, as well as constrained consumer spending.
Analysts expect an increase in sales volume in 2018 on the back of completion of road construction at Apapa, and the company’s backward integration programme.
“Management has guided sales volume increase of 20-25% and 15-20% growth in profits in 2018, which we view as a key positive,” said analysts at CSL
Dangote Sugar’s profit after tax surged by 175.95 percent to N39.78 billion in December 2017 from N14.39 billion the previous year.
Cost of sales increased by 3.95 percent to N149.16 billion as at December 2017; which is lower than 14.33 percent December inflation figure.
“Dangote Sugar has also focused on reducing costs by switching over to natural gas from fuel oil, which should further boost profitability,” said analysts at CSL.
Analysts are upbeat that the country’s rising population that crave for consumption will help support revenue and earnings growth at Dangote Sugar.
BALA AUGIE
