Cadbury Nigeria: Hope rises from Q3 rebound

Cadbury Nigeria Plc looks confident to sustain its profit recovery and growth strategy for the fourth straight year in 2020. The company’s management rekindled hopes in the third quarter when it pushed forward from a loss position in the second quarter to build profit in the third.

The beverage and confectionaries manufacturing company had incurred a loss of N102 million in the second quarter, which led to a profit drop of 20 percent at half year. A new strength came in the third quarter with a profit of N420 million for the period.

With that, the company was able to overwrite the profit drop at half year and achieve a year-on-year profit improvement of almost 32 percent at the end of the third quarter. The company closed the nine months of the 2020 financial year with an after tax profit of over N854 million.

A further gain in momentum is possible for Cadbury Nigeria in the final quarter, which could see the strong year-on-year profit advance sustained to full year. Seasonal sales in the last quarter make this outlook quite promising. Also, costs are expected to remain under check, which will boost profit margin.

The company sustained profit recovery for the third year running in 2019 since returning to profit in 2017. It ended the year’s operations with an after tax profit of over N1 billion. Prospects are high for Cadbury Nigeria maintaining the profit improving trend for the fourth year running in 2020.

The company’s challenge that caused the loss position in the second quarter was loss of sales revenue. Turnover had dropped by over 27 percent quarter-on-quarter in the second quarter.

The company overcame the challenge in the third quarter when it pushed up sales revenue on quarter-on-quarter reading. Sales revenue improved by 4.4 percent to N9.9 billion for the third quarter.

However the moderate improvement in sales gained in the third quarter could not prevent a drop in turnover on year-on-year basis at the end of the quarter. It was nevertheless significant enough to cut the margin of drop in sales from 18 percent at half year to less than 11 percent at the end of September.

Cadbury Nigeria posted a turnover of N25.8 billion at the end of the third quarter operations in September 2020. The figure represents a year-on-year drop of over 10 percent, reflecting declines in both domestic and export sales. This has reversed the strong growth of 25 percent in export revenue at half year.

The company’s management moved to defend profit against the weakness in sales by intensifying cost controls in the third quarter. The success of the effort is evident in the ability to build a profit of N420 million for the quarter.

Cost savings were achieved all through the expense lines of the company in the third quarter, leading to improvement in margins.  Cost of sales dropped by 11 percent to N20.5 billion at the end of the third quarter and that worked out some cost saving for the company.

The moderation of input cost reinforced gross profit somewhat, slowing down the margin of drop from 20 percent at half year to less than 10 percent year-on-year to N5.3 billion at the end of the third quarter.

Further cost savings were made from selling/distribution and administrative expenses at the end of the third quarter. The expense lines went down by 13 percent to N3.3 billion and 29 percent to N936 million respectively at the end of September 2020.

A big operating advantage for Cadbury from the angle of cost is a complete absence of finance expenses. The company has since deleveraged its balance sheet fully and the rewards for paying off its debts are coming in a critical season. With the strength of a debt free balance sheet, the company is able to maintain net finance income.

Net finance income amounted to over N85 million at the end of the third quarter operations. The figure is however a sustaining drop year-on-year but quite significant in the absence of finance expenses.

The complete absence of finance expenses is a key factor that has prevented a wider volatility of the company’s profit performance than recorded so far in the year.

Management’s cost saving effort made a big difference in the company’s earnings performance in the year. The result is a sudden change of position from close to 20 percent drop in operating profit at half year to almost 40 percent advance to N1.1 billion at the end of the third quarter.

The company closed the third quarter with earnings per share of 45 kobo, up from 35 kobo per share in the same period in 2019. It closed the 2019 financial year with earnings per share of 57 kobo and paid a cash dividend of 49 kobo per share to shareholders.