Dangote Sugar Refinery (DSR) Plc, one of the fastest growing consumable goods firm’s aggressive expansion plans have paid off as profit and sales continue upsurge amid a tough operating environment.
The aim of a rational management is to see its strategies impact positively on sales while contemporaneously trickling down to the bottom lines in form of huge profits, bumper dividend and a return higher than the cost of capital.
The company recently released its full year financial statement for the year ended December 2016, showing an impressive performance as key financial indicators upswing amid an unpredictable macroeconomic environment.
Increase in revenue on the back of favorable pricing policy
Revenue increase d by 67.79 percent to N169.72 billion in December 2016 from N101.05 billion as at December 2015 due to increase in price just as in the same volume of 778,518 mt and 778,00 mt were achieved in the period under review. The increase in revenue amid a lower consumer spending caused by pressured government finance as a result of oil price of oil dipped and slow economic activities makes the company’s performance super impressive.
Many companies embarked on mass layoffs in order to stay afloat as the economy shrank by 1.50 percent, the worst recession in 25 years. Inflation for the month of February fell to 18.78 percent, the highest figure in 11 years.
Rising costs spiked due to a weaker currency and huge energy cost
Cost of sales spiked by 82.08 percent to N146.73 billion in December 2016 as against N80.58 billion as at December 2015; this was due a 97 percent surge in the price of raw sugar and huge energy costs.
The price of raw sugar surged on the back of the devaluation of the naira by the central bank as that saw the naira lost 40 percent of its value against the U.S currency.
Also, the destruction of gas supply due to militants by Niger Delta militant on oil facilities forced the company to switch to an expensive source of energy- the Low Pour Fuel Oil (LPFO).
The increase in the energy cost component of the conversion cost was further worsened by the higher price of LPFO against the budget. The Nigerian consumer goods giant’s budget for the period under reviews was N97/litre against the budgeted price of N68/litre.
DSR‘s gross profit margin fell to 13.54 percent in December 2016 as against 19.87 percent the period under review. However, gross profit margin increased by 12.64 percent to N22.98 billion in the period under review from N20.47 billion as at December 2015.
Expectedly, cost of sales ratio moved to 86.45 percent in December 2016 from 79.42 percent as at December 2015.
Upswing in profit despite unpredictable macroeconomic environment
Profit after tax increased by 29.17 percent to N14.39 billion in December 2016 as against as at December 11.14 billion as at December 2015.
Profit before jumped by 21.42 percent to N21.38 billion in December 2016 from N16.15 billion as at December 2015; the growth was due to a 106.21 percent surge in adjustment in the fair value of assets to N2.50 billion. Other the other hand, Earnings before interest taxes and depreciation (EBITA) margins reduced to 13.10 percent in December 2016 from 21.0 percent as at December 2015; this was due to rising costs and scarcity of dollars.
Net margins dipped to 8.47 percent in the period under review as against 11.07 percent as at December 2015. Pretax margin fell to 11.80 percent in December 2016 as against 16.96 percent the previous year.
Strong liquidity position and robust cash flows signals good financial strength
There is no doubt that DSR is a going concern given its zero gearing ratios and its ability to leverage the balance sheet. The Group’s liquidity position improved to N35 billion in the period under review from N9 billion previously held.
As part of the company’s liquidity management policy, the excess fund were placed on short term fixed deposit to earn investment income of N601 million in the period under review from N11.91 billion the previous year.
During the year DSR fully repaid all of the N2.50 billion loans obtained from Dangote
Industries Limited while its subsidiary Savannah was successfully subscribe at N2.0 billion Sugar Intervention Facility (SIF) from the CBN. The combine action resulted in a savings of N374 million finance cost during the period.
The company’s current ration improved to 1:12:1 in December 2016 from 1:07:1 the previous year. This means the company has no liquidity problems and it can finance more capital projects.
Aggressive expansion place with a view to increasing market share DSR has embarked on a Sugar factory in Niger State as part of its committed towards achieving the backward integration policy of government.
The plant is expected to produce 1,100 tonnes of sugar annually – The sugar cane farming and the sugar factory will provide 2,200 direct jobs and 5,300 indirect jobs.
Dangote Sugar is investing over $2 billion in six states in the country through its Savannah Sugar plc in Numan, Adamawa State, North-East Nigeria. It is already expanding plantations in backward integration projects in sugarcane and has pledged to extend this investment to Nasarawa State.
Abdullahi Sule, managing director, Dangote Group’s sugar productions, said last September that the group would commit $170 million to the development rice and sugar plantations on the 17,000 hectares of land in Nasarawa State.
Nigeria’s economy has been hit by a severe dollar shortage caused by a sudden drop in the price of oil since mid 2014. A lot of manufactures have resorted investing in new projects with a view to earnings dollar revenue from exports.
Dangote Sugar Refinery PLC commenced business in March 2000 as the sugar division of Dangote Industries Limited. The sugar-refining factory at Apapa port was commissioned in 2001 with an initial installed capacity to process 600,000 MT of raw sugar per annum.
The refinery has since undergone two expansions increasing the production capacity to about 1.44 million MT per annum, making it the largest sugar refinery in sub Saharan Africa and second largest in the world.