RMB’s outlook for Nigeria’s sugar industry

Dangote Sugar, a prominent player in Nigeria's sugar industry, recently announced its financial results for the fiscal year 2019 and the first quarter of 2020. The company’s performance showed an improvement in sales, despite the challenges posed by the COVID-19 pandemic. Breaking down these earnings is Feyisike Ilemore, a Research Analyst at Rand Merchant Bank Nigeria. The COVID-19 environment has significantly impacted the sugar industry in Nigeria, with expectations of weaker volumes year-on-year for consumer manufacturers. The lockdown in key states and the gradual opening of the economy have disrupted operations, leading to delays in market processes and affecting the ability of distributors to pick up products. Dangote Sugar is not immune to these challenges, with anticipated lower volumes on a quarter-on-quarter basis. However, on a year-on-year basis, the company is expected to see higher volumes by about 70% due to entering new markets previously inaccessible. In terms of financial performance, Dangote Sugar reported impressive earnings in both FY 2019 and the first quarter of 2020. The standout factor in their results was the significant increase in volumes. In the fourth quarter, volumes surged by 21% to 190,000 metric tons, marking the highest quarterly volumes since the second quarter of 2016. This recovery stemmed from the closure of loopholes that allowed for competition from cheaper brands like Smogot Sugar. With the closure of these loopholes in 2019, revenue from new products started flowing in, leading to a recovery in volumes that extended into the first quarter of 2020. Prices also saw a rebound as the company no longer needed to offer discounts to distributors to support volumes. Despite the positive sales growth, the company faced challenges in the first quarter of 2020 as net income slightly declined. This decline was attributed to higher costs resulting from increased raw sugar prices in global markets and a rise in import duty on raw sugar from 5% to 10%. The higher costs impacted the company’s margins, leading to a 10% decrease in net income for the first quarter of 2020. Looking ahead, Dangote Sugar remains optimistic about its prospects and is focused on navigating the challenges presented by the current economic environment. The company's strong sales performance in the face of the pandemic underscores its resilience and ability to adapt to changing market conditions. With strategic measures in place to manage costs and drive efficiencies, Dangote Sugar is well-positioned to maintain its growth trajectory in the Nigerian sugar industry.