A final quarter loss of N1.9 billion has erased about two-thirds of Cadbury Nigeria’s profit of N2.8 billion at the end of the third quarter. That has slashed full year profit to N946 million, which is nevertheless a big leap of 110 percent from the N450 million closing in 2021.
The outcome is in line with our full year earnings outlook for the company at the end of the third quarter that “rising input cost may trim Cadbury’s N2.8bn profit at full year”.
The company’s unaudited financial report for the full year ended December 2022 shows that cost of sales consumed more than the entire sales revenue in the fourth quarter as feared.
At N13.3 billion for the quarter, input cost exceeded sales revenue of N12.6 billion generated in the quarter and left a gross loss of N611 million for the period.
Selling and distribution expenses of N2.3 billion for the quarter, which is an increase of 38.5 per cent quarter-on-quarter with a lean administrative cost of N153 million, swelled operating loss to over N3 billion.
Some respite came from net finance income of N392 million and a tax credit of N802 million that lowered the net loss figure to N1.9 billion for the quarter.
The final quarter disappointment presented a spanner in the works in what could have been Cadbury’s
best earnings season in many years. The beverages and confectionaries company had multiplied the preceding year’s after-tax profit more than six times to N2.8 billion at the end of the third quarter in September 2022.
The final quarter loss is a repeat of the same pattern in the 2021 financial year when a loss of N683 million wiped off a good part of the profit of N1.5 billion the company posted at the end of the third quarter.
With that, Cadbury Nigeria lost profit for the second year in 2021, dropping to the lowest figure in four years. The recovery in 2022 has pushed up the bottom line to the highest in three years – just slightly ahead of the N932 million profit in 2020.
A trend of year-on-year profit decline marked the company’s earnings story in 2022. After-tax profit kept on dropping across quarters from N1.5 billion in the first quarter to N800 million in the second and from N475 million in the third quarter to the loss of N1.9 billion in the final quarter.
Operating volatility that has marked the company’s earnings outcomes in recent years was further extended by inflation and exchange driven increases in input cost and distribution expenses – that intensified from quarter to quarter.
While the critical costs grew in the last quarter, the company lost the improved momentum seen in sales revenue performance at the end of the third quarter. Turnover decelerated sharply from 27 percent quarter-on-quarter growth in the third quarter to 2.8 percent upward creep in the final quarter.
The slowdown in the final quarter dragged down full year sales revenue growth from about 42 percent at the end of the third quarter to 30 percent to close at a little over N55 billion. This remains a consistent gain in sales for Cadbury from N35.4 billion in 2020 and N42.4 billion in 2021.
Moderated by a healthier cost-income balance in the first half of the year, the cost of sales grew only slightly ahead of sales at 32 percent to close at over N47 billion for a full year. Cost of sales claimed an increased share of turnover at 86 percent, up from 84.7 percent in 2021.
Gross profit improved by less than 20 per cent to about N7.8 billion, which was hardly sufficient to absorb increased operating costs.
Selling and distribution expenses rose by 25.5 per cent to N6.4 billion and administrative cost grew by 31 per cent to N1.2 billion – both claiming increased proportions of operating profit.
The result is a meager operating profit of N247 million – which is a drop from operating profit of N491 million at the end of 2021.
The game changer is net finance income of N1.1 billion that provided a critical intervention with which the company eventually headed off a possible loss in the year. It forms the main part of a pre-tax profit of N1.3 billion that Cadbury Nigeria has reported for the 2022 financial year.
The company took advantage of raised interest rates in the year to boost earnings from bank deposits but on the flip side, it has also raised borrowings that may hurt rather than save the bottom line in the current financial year.
Interest bearing debts have expanded from N10.5 billion in 2021 to the region of N24 billion at the end of 2022.
The company earned 50 kobo per share for the full year in 2022, improving from about 24 kobo per share in 2021.
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