Dangote Sugar Refinery sales grow amid FX hit

Dangote Sugar Refinery’s advancing profit in the first quarter (Q1) overturned to hit a pre-tax loss of almost N50 billion in the second quarter (Q2) on foreign exchange loss of over N83 billion mostly incurred in Q2.

This is a complete change of direction for the sugar manufacturing company that lifted after-tax profit by 144.4 percent to N54.7 billion in 2022 and again, moving strongly for the second year, with a 44.3 percent profit advance in Q1 to N12.8 billion.

The company’s rapidly streaming high-growth functions have been congealed by an unexpected foreign exchange loss in Q2 2023 that amounts to 17 times the exchange loss of less than N5 billion in the same period last year.

The company’s interim financial report for the half-year ended June 2023, shows that the impressive performance in operating activities seen since last year was maintained in Q2 with a top record leap of 71.4 percent in operating profit to N29.3 billion.

The strong operating results reflect a defiant decline in production cost against an increase in sales revenue, reinforced by major slowdowns in selling/distribution and administrative expenses in Q2.

Sales revenue grew by 10.5 percent in Q2 to N100.6 billion, while production costs went down by about 5 percent to N68.1 billion. The resulting strong growth of 67.6 percent in gross profit to N32.4 billion was further boosted by the slowdown in operating expenses.

Further to that is a doubling of finance income to N2.2 billion over the period, but all the gains were completely swept off by the foreign exchange loss, plunging group after-tax profit from N11.4 billion in the same quarter in 2022 to N40.8 billion loss in the Q2 ended June 2023.

The company’s half-year numbers reflect both the impressive performance in operating activities as well as the effect of the huge foreign exchange loss in the second quarter.

The top line grew by 9.3 percent year-on-year to N202.8 billion at half-year against a marginal decline of 1.4 percent in input cost to N144.6 billion.

The favourable cost-income combination yielded an impressive growth of 50 percent in gross profit — which closed at N58.2 billion for the half-year.

Selling and distribution expenses were not only low at N303.6 million but also declined from N368.8 million over the period. Further cost-saving came from administrative expenses that slowed down relative to gross profit at an increase of 25 percent to N5.8 billion.

The result of operating activities is an operating profit of N52.2 billion at half-year, an increase of 53 percent year-on-year.

Adding to the company’s good operating result is an outstanding growth of 149 percent in finance income to N4.8 billion and 130 percent jump in fair value adjustment to N2.2 billion. That, however, is the end of the company’s chapter of good report.

Then the bad news followed: the foreign exchange loss that swelled finance cost more than 12 times from N7.3 billion in the same period last year to N90.7 billion at the end of June 2023.

The resulting net finance cost of N85.8 billion more than consumed the operating profit for the period and left a pre-tax loss of N31.4 billion for the six months of trading.

A tax credit of N3.4 billion lowered the net loss to roughly N28 billion at the end of the half-year operations. The figure is a deep plunge from an after-tax profit of N20.2 billion the company posted for the same period in 2022.

Will the foreign exchange loss grow further to swell the loss position in the remaining quarters or reverse to prop up the bottom line will be the key points to watch out for on Dangote Sugar Refinery in the second half.