DANGSUGAR FY 2020 Result: Squeezing Sweet Earnings in the Face of Windy Economy

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Thursday, March 10, 202/ 06:36 PM / Adesola Borokinni, Proshare Research/Header Image Credit:  Dangote Sugar Refinery Plc


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Dangote Sugar Refinery Plc (DSR) saw its profit before tax in 2020 rise by +52.98% despite a combination of adverse factors ranging from the global coronavirus pandemic to the EndSARS protests and the fall in international oil prices in Q1 and Q2 2020.

 

The rise in its company's profit and revenue was nudged up by the government's land border closures and foreign exchange (FX) restrictions. The border closure shut the importation of sugar through illegal land routes while FX restrictions made it expensive and uncompetitive to import sugar.

 

Analysts note that DSR's strong earnings could be credited to improved yields and the purchase of new trucks to strengthen its distribution capacity. Furthermore, its acquisition of Savannah Sugar Company Ltd (SSCL) on September 1, 2020, helped push up revenue which rose by +22.30% to N124.71bn in 2020 from N108.14bn in 2019.

 

Key Highlights/Takeaways

  • Profit before tax rose by +52.98% to N45.62bn in 2020
  • Revenue rose by +33.03% to N214.3bn in 2020.
  • EBITDA increased by +55.8% to N55.41bn in 2020.
  • Sales volume increased by +6.9% to 14.63m bags in 2020.
  • Production volume increased by +13.7% to 14.88m bags in 2020.
  • Total assets rose by +84.32% to N278.03bn in 2020.
  • The debt-to-equity ratio declined to 0.94% in 2020 from 1.24% in 2019
  • Equity rose by +22.30% to N124.71bn in 2020 from N108.14bn in 2019.

 

 

Riding the Sweet Sugar Swing

 

Revenue -the Forward Thrust

Dangote Sugar Refinery Plc recorded an increase in its revenue in 2020 by +33.03%, as its revenue grew to N214.3bn from N161.09bn in 2019. The rise in revenue could be credited to the rise in its sales volume by +6.9% to 14.63m in 2020. Also, the company noted in its investor's presentation that its revenue benefited from a rise in the product price in 2020, as a consequence of FX scarcity and the devaluation of the naira in addition to rising inflation which affected the cost of inputs. (see Chart 1). 

 

 

Chart 1: Dangote Sugar Refinery Plc Revenue (N'bn)

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Source: Dangote Sugar Refinery Plc, Proshare Research

 

The highest contributor to the revenue basket of N206.4bn was the sale of its 50kg bags of sugar, while revenue from retail sugar sales added N5.79bn, as revenue from molasses kicked up a further N826.74m, as freight income put an additional N1.24bn in company's kitty. DSR's largest sales revenue was from Lagos which produced a revenue of N104.87bn while sales from other regions stumped up N79.25bn from the North, N20.34bn from the West, and N9.83bn from the East (see Table 1).

 

Table 1: Breakdown of Revenue

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Profit- Cashing in the Mullah

DSR Plc's profit before tax (PBT) rose by +52.98% in 2020  to N45.62bn from N29.82bn in 2019. The rise in profit was attributed to a +33.03% increase in revenue (see Chart 2).

 

Chart 2: Dangote Sugar Refinery Plc Profit (N'bn)

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Source: Dangote Sugar Refinery Plc, Proshare Research


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The Expense Buggy Train

Administrative, Selling, and Distribution Expenses

Administrative, sales and distribution expenses moved out of step in 2020. While administrative expenses rose in 2020, sales & distribution expenses fell.

 

Administrative expenses rose by +15.22% to N9.01bn from N7.82bn in 2019.  While selling & distribution, expenses declined by -16.73%. Some of the components of administrative expenses that increased in 2020 were the company's management fees +23.0%, employee cost +19.1%, security expense +16.72%, travel-local +121.66%, etc while other administrative expenses recorded a decline e.g., legal, consulting, and professional fees -70.67%, rental expense -85.79%, travel-overseas -90.36%, etc (see Chart 3).

 

Chart 3: Dangote Sugar Refinery Plc Administrative and Selling & Distribution Expenses (N'bn)

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Source: Dangote Sugar Refinery Plc, Proshare Research


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Total Equity - Pushing up the Stake

 

Its total equity grew by +15.32% in 2020 to N124.71bn from N108.14bn in 2019. The rise in DSR's equities was credited to the acquisition of Savannah Sugar Company Ltd (SSCL).  Components of the shareholder's fund that recorded increases were share capital and retained earnings. Its share capital and retained earnings rose by +0.57% and +16.7% respectively in 2020 (see Chart 4).

 

Chart 4: Dangote Sugar Refinery Plc Equity (N'bn)

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Source: Dangote Sugar Refinery Plc, Proshare Research

 

 

Total Assets-A Burst of Cash and Inventories

Dangote Sugar Refinery Plc total assets grew in 2020 by +84.32% to N278.03bn from N193.71bn in 2019. Major asset components recorded increases in 2020 i.e., non-current assets rose by +8.29% to N101.73bn, inventories +24.24% to N63bn, cash and cash equivalents rose by +20.25% to N44.86% (see Chart 5).

 

Chart 5: Dangote Sugar Refinery Plc Total Assets (N'trn)

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Source: Dangote Sugar Refinery Plc, Proshare Research


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Glancing through the Ratios

 

Current Ratio-Hop, Step and Jump

DRS's current ratio fell from 1.29 in 2019 to 1.24 in 2020. This meant that DSR had liquid assets of N1.24 for every N1.00 in short-dated liabilities. The decline in the current ratio was credited to the growth of its current liabilities which outpaced the rise in current assets. Current assets grew by +75.83% while current liabilities sprang by +83.2%. The growth in current liabilities was credited to increases in borrowings +330.54%, trade and other short-term payables +114.36%, other liabilities +76.87%, and lease liabilities +71.63 (see Chart 5).

 

Chart 5: Dangote Sugar Refinery Plc Current Ratio

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Source: Dangote Sugar Refinery Plc, Proshare Research

 

Acid-test Ratio-A Narrow Escape Velocity

 

DSR's acid-test ratio, a tighter measure of liquidity, rose slightly from 0.79 in 2019 to 0.8 in 2020. This suggests that for every N1 of current liabilities, Dangote had N0.8 of very liquid assets to cover its immediate obligations.

 

Dangote Sugar Refinery Plc's current ratio of 1.24 was higher than its acid-test ratio of 0.8 which indicates that its current assets depend largely on inventory which grew by +61.95% in 2020 (see Chart 6).

 

Chart 6: Dangote Sugar Refinery Plc Acid-test Ratio

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Source: Dangote Sugar Refinery Plc, Proshare Research

 

Return on Equities-Warm Feelings with Heavy Pockets

The confectionary maker's return on equity (ROE) rose to 23.9% in 2020 from 20.7% in 2019. The rise in its ROE could be attributed to the significant rise in its profit after tax (PAT) by +30.2% to N31.37bn in 2020 which strode ahead of the growth in equity which rose by +7.22% to N125.3bn (see Chart 7).

 

Chart 7: Dangote Sugar Refinery Plc Return on Equity

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Source: Dangote Sugar Refinery Plc, Proshare Research

 

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Stepping into A Sugary Future

Despite the perception that economic headwinds could persist in 2021, analysts suggest that DSR could maintain an upward swing in its profit in 2021 bolstered by an increase in its sales revenue and market share. Further, a few analysts have expressed fear that the re-opening of land borders might increase competition for DSR products, thereby pulling down the pace of revenue growth. In allaying the fears, the company's management noted at a recent investor's conference call that reopening of land borders would have a negligible impact on its top and bottom lines in 2021.

 

In its outlook for 2021, the company noted that "We are mindful of the underlying impact of COVID-19, we anticipate an increase in cost-to-completion in Naira terms, of the company's Backward Integration Programme because the equipment is largely imported. Possible delays in the establishment of Letters of Credit for importation are anticipated which may have a knock-on impact on the program timelines. In the year 2020, we witnessed a rise in the cost of raw materials, energy costs, and other OPEX due to rising inflation and high FX rate. Possible escalation of cost is anticipated in year 2o21 given inflationary pressure as the economy limps out of recession. Despite these uncertainties, the achievement of our Sugar for Nigeria Backward Integration Project goal remains a key priority. The focus is to achieve the Federal Government's revised sugar production target of 550,000 metric tonnes annually by 2024".

 

As 2021 sashays past the first quarter (Q1) equity holders and analysts alike appear t be keeping a fixed gaze on DSR's operations. The company's H1 2021 numbers would either validate or contradict the companies optimism. 

 

Visit Dangote Sugar Refinery Plc IR Page in Proshare MARKETS

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