Cadbury Nigeria Plc incurred an unrealized foreign exchange loss of almost N21 billion in the second quarter, creating a net loss of roughly N18 billion for the quarter – which has more than consumed the company’s entire equity funds.
The company’s half-year interim financial report at the end of June 2023 shows that the second quarter loss has wiped off the company’s first-quarter after-tax profit of N3.5 billion and left a net loss of N14.5 billion for shareholders at half-year.
That threw retained earnings into a deficit of over N6 billion and drained off the equity base of over N15 billion in June last year, leaving a negative figure of N1.4 billion in net assets at the half year.
New borrowings had to be embarked upon to finance assets and operating activities, as cash flow pressure intensified.
Net cash used in operating activities amounted to over N14 billion in the half year, down from N1 billion net cash generated from operating activities in the same period last year. Balance sheet borrowings grew by N26 billion to almost N50 billion over the six-month period to June 2023.
The downswing in the fortunes of the beverages and confectionery manufacturers in the second quarter has borne out our caution in the review of its first quarter operations that “the company’s profit outlook however needs to be read with caution, as its earnings are subject to considerable operating volatility across quarters”.
There are however some strengths seen in the company’s operations in the second quarter that have been obscured by the foreign exchange loss.
Sales revenue has continued to grow while input costs remain reined in – which was a critical success factor for the company in the first quarter.
Further strength was gained in taming production costs in the second quarter, as it proceeded from slowing down in the first quarter to a decline in the second.
Sales revenue grew by over 26 percent in the second quarter to N19 billion while the cost of sales went down by 5 percent to N11.8 billion. With that, gross profit jumped by 175.5 percent in the quarter to over N7 billion.
Gross profit was robust enough to absorb increases in selling and distribution expenses and administrative costs but a major part of it was claimed by other losses of N3.4 billion that occurred in the quarter.
Operating profit still rose by more than 64 percent in the second quarter to N1.5 billion, which was consumed by net finance costs, led by foreign exchange loss, and created a pre-tax loss of N19.5 billion for the quarter.
The company’s half-year numbers show a turnover of N35.6 billion at the end of June 2023, as sales improved from N16.6 billion in the first quarter to over N19 billion in the second. This represents an increase of 27.7 percent in sales year-on-year.
Cost of sales remained moderate relative to sales in the half year at an increase of 15 percent to N25.4 billion over the period. The good combination powered a top record growth of 74.7 percent in gross profit, which closed at over N10 billion in half a year – much better than the N6.4 billion gross profit realised in the first quarter.
With increases in selling and distribution and administrative expenses, operating profit still grew strongly at over 113 percent to N6 billion. The figure also beat the first-quarter operating profit of N4.6 billion.
With a finance income of over N1.1 billion, the company was headed for a net finance income and possibly a bigger profit than in the first quarter but for the huge foreign exchange loss that changed the earnings story.
The company lost N7.74 per share at the end of half-year operations, dropping from N1.25 earnings per share in the same period in 2022.
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