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Dangote Sugar Refinery Plc Posts N34.6bn Profit Before Tax, Smuggling of cheap Sugar hurts topline

Dangote Sugar Refinery Plc Posts N34.6bn Profit Before Tax, Smuggling of cheap Sugar hurts topline

In Dangote Sugar Refinery (Dangsugar) released its full-year 2018 result wherein it reported weaker earnings (-45% to N22 billion), 5% deviation from our earnings estimate – mainly due to higher than the expected tax paid during the period. For clarity, effective taxes over the period printed at 36.5% (5-year average: 28% and ARM Estimate: 30%).

The unimpressive performance mirrors lower sugar prices (-17% YoY to N12,429 per 50KG bag), volumes (-12% YoY to 587,899MT) and absence of foreign exchange gain recorded in the prior period. The company declared a final dividend of N1.10 (FY 17: N1.75), which translates to a dividend yield of 7.3%, based on the last closing price.

Over Q4 18, revenue dipped by 19% YoY to N33.6 billion, reflecting declines in sugar prices and volumes. Sugar prices dropped by 15% YoY in the review period, reflecting the influx of low-priced smuggled sugar thereby forcing DSR to reduce its prices to compete favourably in the market. Additionally, volumes were also pressured, down by 18% YoY as gridlock situation at APAPA affected outbound logistics.

Despite the poor showing in topline, gross margin expanded by 557bps to 29% as input cost decline at a faster pace (-24.7% YoY to N24.0 billion) relative to revenue. For us, we believe the decline mirrors the moderation observed in global sugar prices (-11.6 % YoY) and improved dollar liquidity. Further down, mirroring gains from margin expansion and slight moderating in OPEX, EBIT margin expanded by 598 bps to 24%

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