Archive Dangote Sugar: The nation's sweet pot

Dangote Sugar: The nation’s sweet pot

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By Jude Chukwuemeka

Despite challenging circumstances in the past year, Dangote Group posted a turnover of 95 billion in 2014. Profit Before Tax (PBT) stood at billion, and Profit After T ax (P A T) billion. Earnings per share totaled 97kobo per share an 8% increase over the corresponding period in 2013.

Sugar is a commodity whose price is determined by the dynamics of global supply and demand. Sugar production is affected by weather and the amount of land under cultivation, while the consumption of sugar is driven by macro-economic factors such as increasing wealth and population growth in the developing world, set against conscious reductions in sugar consumption elsewhere.

Although global sugar consumption is rising at present, its growth is being outpaced slightly by the increase in sugar production. Over the last two years, favourable weather conditions and new sugar projects have created surplus stocks that led to a fall in the global price of raw sugar from more than $450 per tonne to less than $350.

At the 9th Annual General Meeting of Dangote Sugar Refinery Plc, at which the Chairman, Aliko Dangote, founder of Dangote Group presented the Annual Report and Financial Statements for the year ended 31st December, 2014.

2014 was a year of challenges in the operating environment of the company, particularly in the areas of declining purchasing power and security issues in the North Eastern part of the country.

The situation and its impact on business generally, was a harsh reality, which business leaders had to face and manage to the best of their ability.

Despite challenging circumstances in the past year, Dangote Group posted a turnover of 95 billion in 2014. Profit Before T ax (PBT) stood at billion, and Profit After T ax (P A T) billion. Earnings per share totaled 97kobo per share an 8% increase over the corresponding period in 2013.

Worthy of mention is the resounding and unprecedented success of the recent presidential elections in Nigeria which gives much cause for optimism and the corporate environment looks forward to a stable future in the country, in which business will thrive and continue to grow.

2014 Company Dividends

In his speech, the chairman also emphasized the need for more funding due to the challenges faced by companies in Nigeria. He told shareholders, “It remains the company’s policy to return part of its profits as dividends to shareholders at the end of each business year. The dividend paid depends on the company’s financial performance, investment decisions, liquidity levels and banks balances. In view of the significant investments required for our
backward integration projects, your company is in need of additional funding. As such, your Board has taken the decision to reduce the dividend payment for the year from 60 kobo per share to 40 kobo per share.”

The chairman made it known that the move is a transitional situation, requiring short term sacrifices in order to build for the future, and that it is necessary for Dangote Group to maintain prudent capital and liquidity levels, to sustain operations, in tandem with backward integration projects.

“To this end, your Board is following a prudent course of action that will support our backward integration projects and enable our company to sustain a stronger financial footing in the future, the chairman further declared.

The Global Sugar Market

After deliberating briefly on 2014 company dividends, the chairman went to make a few remarks on the global sugar market.

“Conditions in the global sugar market were generally favourable to our refining business in 2014. The consumer demand in emerging markets remains subdued, despite population growth and the seeming gradual recovery in market economies, world sugar prices reflected surplus supply conditions and maintained a downward trend.

“From the very late 1990’s up until 2014, the Global Sugar Manufacturing industry has had to contend with increasing production and volatile price levels.

The increasing diversion of sugar stocks to ethanol production in Brazil did however; limit the buildup of surplus stocks. Raw sugar prices declined during the year, which led to a reduction in the dollar value of our raw sugar imports within the period.”

More volatility will continue in the market prices because European sugar producers position themselves for a post-quota market and the European Commission confirmed the abolition of sugar quotas from October 2017, and this placed a further cap on world sugar prices.

Nigerian Sugar Market in 2014

The Nigerian Sugar Market has seen an increase in investment activity during the year owing to the various initiatives that were prompted by the implementation of the Federal Government’s National Sugar Development Plan. During the speech, the chairman revealed that sugar operators invest in sugar plantations across the country in addition to consolidating their own refining activities. This enables the market to remain strong in the year. Further
challenge is that of terrorism. Dangote Sugar Refinery PLC had to “contend with heightened insecurity in north eastern Nigeria, along with other consumer-oriented businesses. Access to our key markets was hampered, while we also had to grapple with reduced consumer purchasing power and the periodic menace of low-priced unlicensed imported sugar.”

New Sugarcane Nursery at Lau/Tau Taraba State project site

Even in the face of these challenges, the local sales volumes of sugar exceeded 780,000 tonnes in 2014, a slight reduction on the previous year.

Growth Strategy

Management of Dangote Sugar Refinery PLC had already begun the implementation of sugar development plans. Prospectively, ten years from now, the company’s target is to produce 1.5 million tonnes of refined sugar from locally grown sugarcane that is processed at Dangote’s, onsite facilities in locations close to key Nigerian markets.

Management is also determined to maximise opportunities to benefit from the extended value chain in sugar production, with the production of fuel ethanol and the generation of electricity from Dangote Group factories.

Vee Processor: The Vitamin A Mixer. Vitamin A is added to sugar for the required 25,000 if/kg requirement

This expansion project will generate more than 100,000 job opportunities in the coming decade. In 2014, the company’s researchers carried out an evaluation of their projects with the help of the technical partners. As a result of this evaluation, the company’s management adjusted expansion plans in line with
market conditions and will now implement the overall project in stages.

Right now, work has started with the rehabilitation of the Savannah Sugar operations as a model plan, which will then be replicated across various other project sites.

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According to the chairman, Dangote Group, “The Savannah rehabilitation will be undertaken in parallel with the Greenfield development of a 23,000 hectares project in Taraba State within the next 3-5 years. This will be followed by the development of our other sites to cumulate the project within the 10 year plan.

Oil and Currency Impact in Short-Medium Term

2015 has seen a carryover of the challenging business environment with even more impact on cash resources. The devaluation of the naira amongt other uncertainties cast a shadow on the business environment.

Lower oil prices and the naira depreciation had an impact on raw material costs and businesses recognise that passing these costs fully to the already liquidity squeezed consumer environment is a major challenge.

However, the management of the firm has a strong belief in the viability of the Nigerian economy, and maintains a positive outlook for future investment.

The Management Board has vowed to continue guiding the company’s growth principles by employing strategies that will guarantee a sustainable future for business.

About Dangote Sugar

Dangote Sugar is driven by a desire to contribute positively towards the development of the communities in which its subsidiaries operate, and to society at large. As such, the Environment, Health & Safety, and Social Investment Agendas were enhanced during the year under review across all our operations.

The Board is a firm believer that the sustainability of its business is interwoven with the health & safety of Nigerian people and a strong attitude of caring for the environment.

This is guided by good corporate governance and effective risk management initiatives that are now being implemented within the Group.

Dangote Sugar will continue to implement its sustainability agenda, which is the platform it uses in the delivery of its commitments with focus on environmental awareness, promoting health and safety and minimising the risks within company operations.

The Board of the company is currently made up of two (2) Executive Directors, Eight (8) Non–Executive Directors, including the Chairman, three (3) of which are Independent.

Despite Nigeria’s present economic challenges, the Board remains very confident that the company is positioned strongly to enhance its leadership position and expansion strategy will deliver business success and long-term value for shareholders.

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