Cadbury Nigeria appears to be experiencing the best earnings season in many years so far in the 2022 financial year but its ability to avoid another last-quarter loss is dicey. At the end of the third quarter, the company had multiplied last year’s closing-after-tax profit more than six times to N2.8 billion.
That leaves a good chance that the biggest profit in years is in process for the beverages and confectionaries company after losing profit for the second year to close at N450 million in 2021 – the lowest in four years. The snag however is that the company’s fluctuating earnings performance could swing up or down in the final quarter.
The company’s interim financial report for the period ended September 2022 shows that sales revenue is gaining momentum for the second year from N35.4 billion in 2020 to N42.4 billion in 2021 and already at N42.5 billion at the end of the nine months of operations in the year.
The full-year expectation is however subject to significant operating volatility that has marked the company’s earnings outcomes in recent years. A final quarter loss last year wiped off a good part of the profit of N1.5 billion the company reported at the end of the third quarter.
In the current financial year, there is a trend of year-on-year profit decline from N1.5 billion in the first quarter to N800 million in the second and down to N475 million in the third. That leaves the final quarter outcome uncertain with possible chances of either profit or loss.
Sales revenue is expected to keep improving though driven more by inflation than by volume but the real challenge is that input cost is growing far more than sales. That is the main cost incursion that is eroding profit from quarter to quarter.
While turnover grew by 27 percent to N14.7 billion in the third quarter from N11.5 billion in the same quarter last year, cost of sales grew by 50 percent to over N12 billion over the same period. That caused a drop of 27 percent in gross profit to N2.5 billion and set margins declining all the way down to the bottom line.
The profit of N475 million for the third quarter is a big drop from the corresponding figure of over N2 billion last year.
Diluted by the half-year cost and income balance, Cadbury was able to keep sales revenue growing slightly ahead of the cost of sales at the end of the third quarter. Its nine-month revenue grew by 41.6 percent over the corresponding figure in 2021 to N42.5 billion. The cost of sales rose by a slightly slower pace of 39.9 percent over the same period to N34 billion.
The moderated cost position enabled an impressive growth of about 49 percent increase in gross profit to N8.4 billion over the review period. That provided adequate cover for selling and distribution expenses of N4 billion and a significantly increased administrative cost of over N1 billion.
The resulting operating profit of N3.3 billion is an increase of 80 percent over the corresponding figure last year. A finance income of N712 million with no finance cost helped the company to stretch out to a pre-tax profit of N4 billion at the end of September 2022.
A closing after-tax profit of N2.8 billion represents a top record increase of 86.8 percent over the N1.5 billion the company posted in the same period in 2021.
The uncertainty ahead is whether the rapidly growing cost of sales would eat up sales revenue in the fourth quarter and deliver another huge loss for the quarter as happened last year. A final quarter loss of over N1 billion last year leveled the company’s full-year profit to less than N450 million.
In the event of a final quarter loss this year, Cadbury Nigeria can still hope for outstanding profit growth at full year.
The company earned about N1.50 at the end of the third quarter, improving from over 80 kobo per share in the same period last year.
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