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Home Opinions Blurb

Why Dangote Sugar’s 2015 is About to Fall Flat

Nairametrics by Nairametrics
August 4, 2015
in Blurb
Why Dangote Sugar’s 2015 is About to Fall Flat
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DSR’s H1 result was largely flat, and the forward guidance offers little hope for improvement.

Reasons for the flat result reported (according to gleanings from the company’s analyst call) include:

The impact of the election delay in the first quarter:

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In the company’s Lagos market, which is one of the most significant, sales was poor due to the fact that its key customers (which are industries), shut down over fears of electoral violence. The firm’s management advised that some of the key customers were gradually making a return.

Key export markets in neighbouring countries (Chad, Cameroun) were cut-off as the battle against insurgency intensified:

Hence the revenue associated with those markets declined.

Low harvest yield from sugar plantations at Savannah

Savannah Sugar Company Limited, is a cane sugar production operation located on 32,000 hectares of land in Numan, Adamawa State, with a milling capacity of 50,000 tonnes of sugar per annum.

Apart from the fact that the harvest yield was low, the plant still continues to face very significant challenges.

Management is however hopeful that the November/December harvest season will be better, and output could improve.

Also, a sizeable chunk of the company’s financing continues to go into the rehabilitation of the plant, and expanding its capacity and cultivatable land.

Going forward:

Over the last 3 or so quarters, the company has been financing capex from short term financing sources (bank loans), which has been typically expensive. Financing costs are expected to remain high into the next quarter, and it will continue to eat into the company’s profitability, given the fact that the company expects to still finance capital expenditure from short term loans.

Management said it awaits better financing deals from the CBN’s agric lending scheme, which is of a longer term nature.

The forward revenue guidance of the company remains flat given the fact that international market conditions will persist, and the consumer challenges in the local economy have not abated.

As a sign that the market conditions are beyond the control of the firm, management said that its strategy will be to ramp up on volume growth, to offset fall in unit prices.

Tags: Dangote SugarManufacturing
Nairametrics

Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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