The hopes for Cadbury Nigeria Plc sustaining profit recovery and growth for the fourth straight year in 2020 were dashed by a net loss of N682 million in the final quarter. The loss consumed much of the company’s closing profit of N854 million at the end of the third quarter.
The result is that the company’s full-year profit crashed from over N1 billion at the end of 2019 to a little over N172 million at the 2020 close. This is the worst profit record since the company’s loss of N296 million in 2016.
Cadbury Nigeria’s report for the year, which is yet to be audited, shows that the loss of sales revenue was the central problem in 2020. Turnover dropped to the lowest figure in three years while sticky input cost shrank margins. The beverage and confectionaries manufacturing company has therefore detracted from its three-year trend of profit recovery.
Sales had picked up in the third quarter when a quarter-on-quarter improvement changed the rhythm of a significant loss of sales in the second quarter. The development raised hopes for sustaining the momentum with seasonal sales in the final quarter.
On the contrary, a 4.4 per cent improvement in sales in the third quarter, gave way for a drop of 7.7 per cent in the final quarter on quarter-on-quarter reading. Against the drop in sales in the quarter, the cost of sales grew by 13 per cent quarter-on-quarter. This was the trouble spot for Cadbury in the final quarter and the year.
The company generated sales revenue of N9.6 billion in the final quarter, which is only moderately above its cost of sales figure of N9.1 billion for the period. That sent gross profit crashing by 79 per cent quarter-on-quarter.
Despite a big slash in administrative expenses in the quarter, the Company incurred an operating loss of over N1 billion in the final quarter. A moderate finance income and a tax credit helped to cut the net loss to N682 million for the quarter.
Despite the improvement in sales revenue in the third quarter, the company still closed the nine months of the year with a drop of 11 per cent in turnover at the end of September. The full-year position shows sales revenue of N35.4 billion for Cadbury Nigeria at the end of the 2020 financial year. This is a drop of roughly 10 per cent in turnover for the year to a three-year low. Both domestic and export sales went down at the end of the year with export sales maintaining a downward mood for the second year.
Reflecting the increase in the final quarter, cost of sales changed position from dropping ahead of sales at the end of the third quarter to declining below it at full year. The development reinforced the downward pressure on gross profit – extending the margin of the drop from less than 10 percent at the end of September to nearly 31 percent to N5.8 billion at the end of the year.
Cost of sales claimed nearly 84 percent of sales revenue in 2020 compared to 79 percent in 2019. The company’s management intensified controls in operating costs to compensate for the encroachment of input cost on margins.
Cost savings happened all through the expense lines at the end of the year but this was insufficient to defend margins. Selling and distribution expenses went down by 12 percent to N4.6 billion and the administrative cost was slashed by 32 percent to N1.1 billion.
The cost savings made no visible impact on the company’s earnings performance during the review period. Operating profit fell by 91 per cent to N119 million at the end of the year from an almost 40 per cent increase at the end of the third quarter.
Cadbury’s ability to even remain profitable lies in its timely step to deleverage the balance sheet. The benefit of a debt-free balance sheet helped to prevent worse operating results, adding a modest net finance income alongside. A complete absence of finance expenses is a key factor that prevented an outright loss in the year.
Cadbury Nigeria ended the 2020 financial year with an after-tax profit of less than N173 million, which is a crash-landing from an after-tax profit of N1.1 billion it posted at the end of 2019. The modest profit was made possible by a net finance income of N127 million and a major drop in income tax expenses.
The turn of events in the final quarter has prevented Cadbury from sustaining profit recovery for the fourth straight year since returning to profit in 2017. The further gain in momentum expected with seasonal sales in the final quarter was not realised.
The company lost 9 kobos per share at the end of the 2020 operations, a drop from earnings per share of 57 kobo in the preceding financial year. Dividend prospects are slim though the company has adequate retained profit it may decide to fall back upon in lean times.
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