Leading sugar manufacturing company, Dangote Sugar Refinery plc, posted increased revenue for the first time this year as recent government pronouncement regarding the country’s land borders with neighbouring countries paid off for the sugar manufacturer.
Revenue of Dangote Sugar rose by 13.4 percent on a year-on-year basis in the third quarter of 2019 to N37.06 billion, according to its nine-month financial results. The third-quarter results, which pushed the company’s cumulative revenue up by 0.6 percent in the first nine months of the year, came after the company recorded declines in sales volumes in the previous two quarters.
The improved result, which is in line with the company’s expectation, “suggests the possibility that the company may be feeling the positive impact of the border closure which has a limited entry of smuggled sugar,” according to analysts at CSL Stockbrokers.
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Dangote Sugar and other sugar refinery companies in Nigeria faced a hard time before the government closed Nigeria’s border with the Benin Republic in August to curb smuggling activities across the corridor. The company had attributed previous declines in sales volumes to the continued presence of lower quality, unlicensed sugar being smuggled into the country and sold in key markets at lower prices.
But besides the border closure, the company gained more leeway in route-to-market distribution due to the federal government’s recent efforts at decongesting Apapa road network, a situation which led to higher turnover in the third quarter of 2019, according to analysts at Lagos-based Chapel Hill Denham.
A breakdown of the Dangote Sugar’s results revealed that the third quarter 2019 performance was largely driven by higher sales volume across its major business segments. Revenue from the sale of wholesale 50kg bag of sugar jumped 0.86 percent to N111.2 billion in the nine-month period, while revenue from the sale of retail sugar rose by 2.65 percent to N3.29 billion.
However, revenues from retail molasses and freight services declined by 26.8 percent and 7.3 percent to N465.9 million and N2.45 billion, respectively.
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While Lagos remained the biggest contributor to the company’s top line, sales from the East grew the most across its four regions of operations. Revenue from the East was up by 11 percent to N6.97 billion and contributed 5.9 percent to turnover, revenue from the North region increase by seven percent to N44.49 billion and contributed 37.9 percent to turnover, while revenue from Lagos rose 0.26 percent to N54.95 billion and accounted for 46.8 percent of the company’s revenue.
On the other hand, sales realised from its West region, which excludes Lagos, slumped 22 percent to N11 billion, thereby accounting for only 9.3 percent share of the accrued revenue of the company in the first nine months of 2019.
Cost of sales rose by 10.8 percent to N29.16 billion in the third quarter and 1.5 percent to N88.41 billion between January and September 2019. This was largely driven by increase in the cost of raw materials which the management said was due to the increase in the import duty on raw sugar to 10 percent as against 5 percent charged previously.
Similarly, operating expenses jumped 9.2 percent in the nine-month period on the back of a 56.9 percent growth in operating expenses in the third quarter, leading to a decline in operating profit to N22.9 billion as against N24.28 billion recorded a year earlier.
All these weighed on earnings, causing the company to record a 12 percent dip in after- tax profit to N14.7 billion in the first nine months of the year. This compares with N16.7 billion achieved in the same period last year.
Meanwhile, analysts at Chapel Hill Denham and CSL Stockbrokers maintained a “HOLD” rating on Dangote Sugar with a 12-month target price of N9.23 and N14.50, respectively. Also, shares of the sugar manufacturing company closed unchanged on Friday at N10.35 on the Nigerian Stock Exchange.
