Dangote Sugar Failing To Sweeten Profit
Dangote Sugar Refinery missed the sweeteners needed to swell revenue and profit as at the end of its third-quarter operations last year and the full year earnings report expected in weeks may see a profit fall for the second year. The sugar refining company began a backward integration project in 2018 under which it plans to produce 1.5 million metric tonnes of sugar per annum from locally grown sugarcane. That isn’t adding to revenue or profit for now.
In 2018, the company’s sales revenue dropped by 26 percent to a little above N150 billion – the lowest revenue figure in three years. A profit drop of as much as 45 percent followed the drop in sales in the year to close at under N22 billion. The company again lacked the essential ingredients to push its turnover or reinforce profit performance in 2019.
The sugar company ended the third quarter operations in September 2019 with sales revenue flat and profit still on a downward direction. Reasonable estimates indicate that the third quarter position is expected to follow the company to full year. The sugar company may be giving bitter news of another loss of profit to shareholders for its last year’s operation.
The problem runs from the top to the bottom lines. Against flat revenue, input cost pressed forward and eroded gross profit. Other income dropped suddenly after a comfortable growth in 2018 and administrative expenses grew, leading to a drop in operating profit – which the company equally experienced in the preceding year.
A complete disappearance of finance income in 2018 that was as big as over N4 billion in 2017 was a major factor in the profit drop in the year. Finance income was again completely missing in 2019 but net finance cost dropped at the end of the third quarter.
Another disappointment came from investment income, which dropped for the second year, this time by as much as over 72 percent. There was equally bad news from fair value adjustment loss – which swelled more than five and half times year-on-year at the end of September 2019.
The summary of the company’s earnings story at the end of the third quarter of 2019 is that revenue and incomes weakened further and costs and losses grew. The result is a further weakening of profit capacity for the sugar refining company after a big profit drop in 2018. The strength for a rebound was missing for the company at the end of September and the full year expectation is a further decline in profit to the lowest figure in three years.
Dangote Sugar Refinery ended the third quarter operations with a turnover of N117.4 billion, flat on the N116.8 billion posted in the same period in 2018. The company’s sales revenue comes largely from sales of sugar, which is supplemented by earnings from sales of molasses as well as freight.
Turnover is estimated to be in the region of N155 billion for Dangote Sugar Refinery in 2019, slightly up from the closing revenue figure of N150.4 billion in 2018. The company had lost over 26 percent of its preceding year’s sales revenue at the end of 2018 and the strength to rebuild sales was missing all the way in 2019.
At N88.4 billion, input cost edged upward at the end of the third quarter and encroached on gross profit – which declined marginally to N29 billion. This was extended by a drop of 64 percent in other income to N122 million and an increase in administrative expenses to N5.6 billion during the review period. Operating profit dropped by about 6 percent to N22.9 billion after dropping by over 25 percent in 2018.
The company remained on a net finance cost position for the second year in 2019 after losing completely its huge finance income in excess of N4 billion in 2017. It faced cash flow difficulties in 2018 during which net cash generated from operating activities fell from over N26 billion in 2017 to N3.8 billion. There was a marked improvement to N11.7 billion at the end of the third quarter of 2019 but dividend payment continued to drain the company’s cash reserve.
Investment income continued to underperform in 2019 after a drop of 24 percent in 2018. The drop accelerated to 72.5 percent to less than N594 million at the end of September 2019. Further to that is a loss on fair value adjustment, which swelled from less than N79 million in the same period in 2018 to N443 million at the end of the third quarter.
With increased costs and losses against flat turnover and drop in other income, the company’s profit capacity weakened for the second year. Profit margin declined further from 14.6 percent in 2018 to 12.5 percent at the end of September last year. Profit margin peaked at 19.5 percent in 2017.
The company closed the third quarter of 2019 with after tax profit of N14.7, a drop of 12 percent year-on-year. The full year after tax profit is estimated to be in the region of N18.5 billion in 2019 – which will be a further drop from the closing profit figure of roughly N22 billion in 2018.
The company earned N1.24 per share at the end of September 2019, down from N1.41 per share in the same period in 2018. The full year estimate is N1.54 per share for Dangote Sugar Refinery in 2019.
It earned N1.85 per share at the end of 2018 and gave out N1.1 per share in cash dividend. The divided had dropped from N1.25 per share in 2017 and a further drop for the 2019 operations appears quite likely.
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