Company Analysis

Cadbury rebuilds profit, raises hopes for full year

 

Cadbury Nigeria has wiped off a loss of N424 million it recorded at
the end of its half year trading in June. A profit of close to N600
million in the third quarter saw the company out of the red into a net
profit of N172 million at the end of September.
This presents a new strength for the beverage and confectionaries
manufacturing company that raises hopes for a big leap in profit at
full year. Last year, the company turned a third quarter loss into a
full year profit. This year, it has built profit from third quarter
and looks quite good to multiply last year’s net profit of N299
million about three times.
Cadbury’s challenge remains rising cost of sales that erode gross
profit margin in a slowly growing sales revenue situation. The company
closed the third quarter operations in September 2018 with sales
revenue of slightly below N27 billion. This is a year-on-year
improvement of 10.7%, accelerating from less than 8% at the end of
June.
Cost of sales continues to grow ahead of turnover at over 14% to
N21.65 billion over the same period. That caused a decline of 2.2% in
gross profit to N5.30 billion at the end of the third quarter,
improving however from 7% drop at half year.
Revenue from domestic sales of beverages was flat at the end of the
period. The growth so far recorded in sales revenue is driven
exclusively by a 75% expansion in export sales amounting to over N4
billion at the end of September.
The full year outlook is promising to see turnover in the region of
N37 billion for Cadbury in 2018. That will be a new peak in sales
revenue – 12% up on the 2017 closing and beating for the first time in
six years the existing 2013 revenue high of N36 billion.
The change in fortunes so far this year is coming from cuts in
selling/distribution expenses and administrative cost.
Selling/distribution expenses went down by 12% and administrative cost
dropped by 20% year-on-year at the end of the third quarter.
The reductions empowered the company to lift operating profit from
only N38 million in the same period last year to N679 million at the
end of September. That also enabled it to overwrite an operating loss
of about N106 million at the end of half year.
Rising finance expenses continues to pose a major challenge in the
company’s operations. Net finance cost multiplied more than four times
to over N426 million at the end of the third quarter, consuming 63% of
operating profit.
Rising finance cost is despite a continuing reduction in the company’s
balance sheet debts. Cadbury’s interest bearing debts have continued
to drop from N3.6 billion at the end of 2017 to N2.37 billion at the
end of June and further to N1.66 billion at the end of September.
The company closed the third quarter with an after tax profit of about
N172 million, a rebound from a loss of over N64 million in the same
period last year. The profit came all within the third quarter when a
profit of N595.72 million wiped off a loss of N424 million at half
year.
Another strong performance is expected of the company in the final
quarter, raising hopes for a full year profit in excess of N800
million for Cadbury in 2018. The company closed last year’s operations
with a net profit of N299 million.
The company earned 9 kobo per share at the end of the third quarter, a
rebound from a loss of 3 kobo per share in the same period last year.
Earnings per share is expected to be in the region of 40 for Cadbury
Nigeria at the end of 2018. It earned 16 kobo per share in 2017 and
gave it all out to shareholders in cash dividend.

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