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Dangote Sugar Refinery Q420 - Strong end to a strong year

Growth continues strong

• Dangote Sugar Refinery’s Q420 revenue of N53.78 billion was a decline from Q320’s N57.28 billion (-6%QoQ) but still represented a strong growth of 23% when compared to Q419 (N43.66 billion). DSR’s cost of sales declined, for the first time since Q119, by 0.6%YoY which is impressive in the midst of a double-digit inflation and a currency depreciation. Gross profit more than doubled to N19.6 billion on the back of higher revenue and declining costs while operating profit also doubled (to N16.56 billion) despite a rise in OPEX. A sharper drop in finance expense than finance income brought net finance expense down by 40% which helped lead PBT higher by 142%YoY to N16.54 billion. DSR are hosting a conference call on Thursday to go over their results and provide guidance for the upcoming year; we will provide our forecasts after this call.
• Corporate sales leads revenue higher:  DSR’s 23%YoY revenue growth to N53.78 billion over Q420 was driven by a 25% rise in sales of their 50kg bags (i.e. corporate sales). Corporate sales accounts for 95% of their total sales so performance in that space is a strong driver of overall revenue performance. Retail sales, on the other hand, accounts for 3% of total revenue and declined by 32%YoY in Q420. There were also increases in the sale of molasses (85%YoY) and freight income. Costs, on the other hand, declined by 0.6%YoY to N34.18 billion led by a 7.4%YoY fall in overhead costs. Raw materials, which makes up the bulk of cost of sales, was up by 0.91%YoY over the quarter. Consequently, gross profit rose 112%YoY to N19.6 billion leading to a higher gross margin of 36% (Q419: 21%).
• OPEX rose 23.6%YoY to N2.96 billion largely driven by the 27% YoY rise in admin cost  over the period as employee costs, management fees and training costs increased while sales & distribution costs fell by 12.7%YoY. Additionally, DSR booked a N99 million impairment on its investment in Dangote Niger Sugar Ltd. Operating profit (EBIT) came in at N16.56 billion, a 141%YoY increase, which translates to an EBIT margin of 31% (Q419: 16%).
• Finance income was lower by 80%YoY following a fall in interest income earned on bank deposits while finance expenses crashed by 106%YoY. The combined effect was a 40%YoY fall in net finance expense to N174 million. PBT came in 142% higher YoY at N16.54 billion but a spike in tax expense to N13.4 billion, from an N800 million tax credit a year ago, meant that PAT declined by approx. 60%YoY to N3.15 billion.
• Highlights from the balance sheet include a 34%QoQ decline in cash to N44.86 billion as DSR recorded a higher cash outflow in Q4 20 for the purchase of PPE. Inventories were up 58%QoQ to N63 billion as raw materials in transit (+50%), finished goods (+85%) and production supplies (+98%) rose significantly during the period. Lastly, trade and other receivables were up 20% to N63.1 billion as trade receivables rose 83% to N6.9 billion and advance payment to contractors climbed by 45% to N30.1 billion