Cadbury Nigeria Plc has set the pace for outstanding earnings growth this year with an after-tax profit of N3.5 billion – which beats many years of profit numbers put together.
The beverages and confectionaries manufacturers ended the 2022 full year’s trading with an after-tax profit of N583 million. Its profits for the past five years to 2022 sum up to N3.8 billion – just a little above the figure it registered for the first quarter.
The company’s profit outlook however needs to be read with caution, as its earnings are subject to considerable operating volatility across quarters.
Cadbury’s first quarter interim financial report at the end of March 2023 shows profit scurrying up from a huge final quarter loss in 2022 that erased a good part of the third quarter closing profit of N2.8 billion.
The change of fortune for the company this year hinges on reining in input costs that went apparently out of control in the fourth quarter of last year. The cost of sales had consumed more than the entire sales revenue in the final quarter.
The company’s management appears to have tamed input costs almost overnight to create a big room for profit that largely eluded the company in 2022. Keeping sales growing and getting input costs significantly moderated is the critical profit-boosting factor for Cadbury in the first quarter.
While sales revenue grew by 29.5 percent quarter-on-quarter to N16.6 billion, the cost of sales went up by 6.7 percent to N10.2 billion over the same period.
The increase in sales represents additional revenue of N3.8 billion for the quarter compared to an increase of N640 million in cost of sales. This indicates a new strength in generating the naira of sales revenue with much-reduced production costs.
The cost saving made the difference by almost doubling gross profit from N3.2 billion in the same quarter last year to roughly N6.4 billion at the end of the first quarter.
Selling and distribution expenses however could not be contained, which grew by 53 percent quarter-on-quarter to about N1.6 billion. The resulting incursion in earnings was however diluted by a drop of 16.6 per cent in administrative cost to N260 million over the period.
The second level of cost saving stretched out margins, resulting in an outstanding growth of 136.8 percent in operating profit – amounting to N4.6 billion at the end of the first quarter.
A net finance income of N380 million provided a third-level cost-saving/profit capacity building for Cadbury that underlies the company’s impressive outing in the first quarter.
The interest-bearing debts are however expanding rapidly from N10.5 billion in 2021 to N24 billion at the end of 2022 and further to the region of N28 billion at the end of the first quarter.
The company closed the quarter with a pre-tax profit of N4.9 billion, which is an outstanding growth of 124 percent quarter-on-quarter from N2.2 billion in the same quarter in 2022.
Cadbury is seeing consistent gains in sales from N35.4 billion in 2020 to N42.4 billion in 2021 and from N55 billion in 2022 to the annualized region of over N66 billion for 2023. The question mark on the company is whether it could keep input costs in check all the way.
Significant operating volatility had set a trend of year-on-year profit declines for Cadbury across quarters in 2022. The company’s profit declined throughout the year 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 about N2.2 billion in the final quarter.
The final quarter loss in 2022 followed the same pattern in 2021 when a loss of N683 million in the fourth quarter wiped off a good part of the profit of N1.5 billion the company posted at the end of the third quarter.
The company earned N1.84 per share at the end of the first quarter, improving from 82 kobo per share in the same period in 2022.
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