Dangote Sugar Refinery Plc (DANGSUGAR) released its 2023FY audited financials over the weekend, reporting a loss per share of NGN6.07 (2022FY EPS: NGN4.51). The loss for the year was triggered by mounting pressure from COGS (+14.1% y/y) and OPEX (+26.0% y/y) and the elevated net finance costs (+19.6x y/y) in the period.
DANSUGAR’s revenue increased slowly by 9.5% y/y in 2023FY (2022FY: +14.6%), driven by the growth recorded across its 50kg Sugar (+9.1% y/y | 96.6% of revenue), Retail sugar (+45.3% y/y | 2.6% of revenue) and Molasses (+6.5% y/y | 0.5% of revenue) business segments, as Freight income (-43.6% y/y | 0.3% of revenue) declined. Across its geographical footprint, DANGSUGAR witnessed topline growth in its Lagos (+18.2% y/y), North (+2.2% y/y) and West (+11.4% y/y) regions, while revenue from the East (-6.6% y/y) declined.
Gross margin (-326bps) contracted to 19.5%, following the 14.1% y/y growth in cost of sales. We note that the bulk of cost pressure emanated from the higher raw materials costs (+15.5% y/y | 83.4% of COGS), due to the high inflationary environment and local currency devaluation. Consequently, EBITDA (-414bps) and EBIT (-397bps) margins weakened to 18.7% and 16.5% in the period, respectively, further pressured by a 26.0% y/y growth in operating expenses.
Unavoidably, net finance costs surged by 19.6x y/y, as net exchange losses rose by 91.1x y/y to NGN172.20 billion amid the higher interest paid (+272.4% y/y) on letters of credit, lease, intercompany and bank loans. Elsewhere, finance income (+65.5% y/y) grew, following a rise in short-term deposits (+6.7% y/y to NGN161.86 billion). Similarly, fair value adjustment (+186.4% y/y) printed higher, driven by growth in (1) total cane plantation to 8,283 ha (2022FY: 8,092 ha), and (2) industry out-grower assumed price/ton to NGN34,899 (2022FY: NGN17,874).
Consequently, 2023FY pre-tax loss settled at NGN108.92 billion (vs 2022FY profit before tax of NGN82.30 billion). With a tax credit of NGN35.16 billion (vs 2022FY tax expense of NGN27.56 billion), loss after tax came in at NGN73.76 billion in 2023FY (vs net profit of NGN54.74 billion in 2022FY).
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Comment: DANGSUGAR’s 2023FY subpar performance underscores its sloppy operation and poor sales turnover in the year, further exacerbated by broader operational challenges, including escalating inflation, currency devaluation, and constrained consumer wallet. Looking ahead, we envisage an uptick in sales volume coupled with further price adjustments to ensure decent topline growth. Even as we like management’s initiatives of containing rising costs and moderate FX dependence in the long-term with the pursuit of more efficient supply chain infrastructure and backward integration projects, we believe the pressure points from rising costs and FX depreciation will remain sticky in the near term.
