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Company Results

A Sterling performance? Not quite, but commendable

Sterling Bank made N5.4 billion in profit for the Half-year 2020, falling shy of the N5.7 billion posted in the corresponding period of 2019.

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Sterling Bank

The continuing economic crisis and lull in activities triggered by the unprecedented corona-virus outbreak has manifested itself it terms of decreased activities; causing a dip in commercial bank’s lending operations and having negative impacts on their bottom line. These predicaments have necessitated banks to assess their risk portfolio and accord grave attention to the growing puzzle of capital adequacy, profitability, liquidity and credit quality.

Regulatory mandates have also directly worsened commercial bank’s ability to generate substantial non-interest income (fees and commission) in the short run. CBN’s new bank charges which took off on January 1, 2020, saw card maintenance fees and electronic transfer fees reviewed downwards.

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In the case of Sterling Bank, the impact is mammoth, evidenced in the disparity between the N4.1billion derived in Q2 of 2019 and N2.4 billion obtained in Q2 of 2020. The spirit of these legislations are to ensure a more structured and stronger institution, but their negative impacts on cash flow for these commercial banks cannot be overplayed.

Sterling Bank made N5.4 billion in profit for the Half-year 2020. This falls shy of the N5.7 billion posted in the corresponding period of 2019. The bank also maintained a loan to deposit ratio of 68.2% in Q2 of 2020, and further met capital and liquidity requirements at 15.2% and 33.5% respectively. All above the benchmark

READ: STERLING BANK: Reduced fee income, weak operating efficiency drives steep decline in pre-tax profit

The Tier-2 bank improved its interest income by 9.6% between Q1 and Q2 despite the apparent economic hindrances caused by COVID-19. However, a high-interest expense remain genuine cause for concern. STERLING’s proportion of interest expense to interest income is at 40.9%. Whilst this may seem optimal to an onlooker, it provides inclination that the Tier-2 bank was not able to generate sufficient ‘cheap’ deposits and borrowings to run its business with. Despite customer’s deposit increasing by 2.5% from N892.7 billion in 2019 to N915.2 billion in 2020, these apparently were at high-cost; costing the bank significant interest. Notes to the account in the financial statement reveal the interest payments on deposits forked out, as a staggering N9.5billion.

READ: Startimes, DStv, Others adjust prices as Nigerian businesses battle tough economic conditions

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There are positives – Causes for optimism 

Net trading income increased from N717 million to N3 billion due to gains from treasury bills and bonds.

Interest expense reduced from the N15.6 billion constituting 51% of the interest income in 2019 to N12.5 billion Q2 2020 constituting 40.9%.

Operating expenses (OPEX) were handled much well as report shows consistency in reduced cost levels, recording N16.9 billion in Q2 2019, N16.6 billion in Q1 2020 and now N15.6 billion for Q2 2020. It is logical to expect OPEX to finally fall below the N15 billion mark by FY 2020.

The Chief Executive Officer (CEO) of Sterling Bank Plc, Abubakar Suleiman whilst commenting on the Bank’s performance, explained how the Bank steered the tide this period. He was quoted as saying, “we responded to the uncertainty by doubling down on cost optimization while leveraging our existing remote work policy to keep our workforce productive without risking COVID-19 infection. Notwithstanding rising inflation, we were able to moderate expenses during H1 2020 to deliver a net profit comparable to the first half of 2019. “

The future with this pandemic remains unpredictable. Predictive expectations for subsequent quarters are made without the accustomed confidence exhibited in prior years and thus should be taken with a pinch of salt.

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But should Sterling bank continue their sterling task of effectively managing and reducing their huge costs, Quarters 3 and 4 should be even better, profit-wise.

Ekene Onyeama is a Chartered Accountant currently plying one of the Tier one Banks in Nigeria. He started out his career at Ideascorp Limited, a private company in the hospitality industry where he served as the accountant before switching to banking. Ekene enjoys analyzing companies. He likes to write and is very excited by company valuations. He can be reached on Twitter @Ekenergy_

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Company Results

Dangote Cement incurs N97 billion taxes in 2020

The cement giant incurred its taxes on record.

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One of Nigeria’s largest indigenous companies and the largest by market capitalization incurred a company income tax of N97 billion for the financial year ended December 2020.

This s according to the information contained in its full-year audited financial statements for the period under review.

Dangote Cement Taxes. 2018 was a tax credit.
Source: Nairalytics Research

Why this matters?

Dangote Cement has enjoyed Pioneer Status over the years and has often been criticized for not paying enough taxes despite its mega-profits.

  • The N97 billion incurred in 2020 is the highest company income tax reported by Dangote Cement since it became listed on the Nigerian Stock Exchange.
  • It incurred N49 billion in taxes in 2019 and got a tax credit of N89.5 billion in 2018.
  • Despite incurring N97 billion in taxes during the year, Dangote Cement’s actual tax paid was just N20.9 billion in 2020 compared to N4.6 billion paid a year earlier.
  • Tax incurred in the profit and loss statement is an accounting provision and is not always the actual tax paid in cash.
  • Putting it into context, the dividend paid during the year is N272 billion and interest payments to its creditors totals N48.2 billion.

Improved Cement Revenues

Despite the Covid-19 Pandemic, the Cement Giant reported full-year revenue of N1 trillion, the highest it has ever recorded since it was privatized almost 20 years ago. The company also reported a profit before tax of N373.3 billion only and a profit after tax of N276 billion, its highest since 2018.

Nigeria like most countries in the world has faced a challenging 2020 due to the impact of Covid-19 on the economy, especially the private sector. However, mega-corporations like Dangote Cement appear to have even performed better during the year. The cement industry in general also appears to have performed well during the year as the combined revenue of the top 3, Dangote Cement, Lafarge, and BUA rose to N1.47 trillion from N1.28 trillion.

The impressive result nonetheless, Dangote Cement’s margins remained strong during the year posting a gross profit margin of 57% in line with its 3-year averages. However, the higher taxes incurred in 2020 dropped profit margins to 26.7%. When compared to 2018 when it still enjoyed Pioneer status, the company posted profit margins of about 43%.

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Company Results

Dangote Sugar yearly revenue surge by 33%, announces a dividend of N1.50

Dangote Sugar Refinery Plc. recently declared a 33.0% Year to year growth in earnings to N29.8 billion for the financial year of 2020

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Dangote Sugar Refinery to merge with Savannah Sugar, Dangote was $4.3 billion richer in 2019, Dangote Sugar announces closed period, ban insider shareholders from trading , Dangote Cement: Weak revenue performance, elevated OPEX weigh on earnings

Dangote Sugar Refinery Plc via the Nigerian Stock exchange recently declared a 33.0% Year to year growth in earnings to N29.8 billion for the financial year of 2020

The company also announced a dividend of N1.50 (vs N1.10 total dividend in 2019).

Dangote Sugar’s revenue expanded by 33.0% YoY amid strong volume growth in its 50 kg sugar offering (c.96.0% of total sales).

The company’s impressive outing amazed a significant number of stock pundits despite a surge in tax charges which partially offset some of the positive passthrough from border closures on earnings.

READ: Dangote Sugar Refinery: Revenue soars amid rising cost of sales

Gross margin expanded by 1.31ppts Year to Year to 25.08%, which points to the effects of recent cost-containment measures and the slump in global raw sugar prices in 2020 amid the COVID-19 pandemic.

The raw sugar price dropped to as low $0.09/lb in 2020 and traded c.$0.13/lb on average during 2020 (-4.38% YoY)

What you should know: Dangote Sugar Refinery Plc (the Company) was incorporated as a Public Limited Liability Company on 4 January 2005, commenced operation on 1 January 2006, and became quoted on the Nigerian Stock Exchange in March 2007.

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Its current shareholding is 68% by Dangote Industries Limited and 32% by the Nigerian public.

The principal activity of the Group is the refining of raw sugar into edible sugar and the selling of refined sugar. The Group’s products are sold through distributors across the country.

READ: Buhari to commission phase 1 of brand new refinery this week

That being said, in spite of such impressive results from the N217 billion valued company experienced a surge in operational cost partly due to persistent FX scarcity.

Dangote Sugar reported a four-fold increase in finance cost, which can be largely attributed to the foreign exchange loss in its ordinary business operations, driven by persistent FX shortages and naira repricing at the exchange rate windows.

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