Cadbury post 124% rise in profits, share price surge by 21%

Article Summary

• Cadbury Nigeria Plc has recorded a record-breaking 124% quarter-on-quarter growth in profit after tax, amounting to N3.453 billion, thanks to a 30% increase in its topline revenues, driven by better distribution, price adjustments, and improved product positioning.
• The company’s impressive Q1 profits delivered earnings per share of N1.84, the best since 2016, and investors rewarded Cadbury with a share price bump, gaining 9.8% on Thursday to close at N12.3 per share.
• To sustain this performance all year round, Cadbury will need to keep profitability margins at 15-20%, which will be challenging in a difficult environment, considering rising costs, inflation, exchange rate depreciation, and the new naira note swap policy.

Cadbury Nigeria Plc has released its unaudited financial statement for the first quarter that ended on March 31, 2023, highlighting a record-breaking 124% quarter-on-quarter growth in profit after tax, amounting to N3.453 billion.

The impressive growth in the bottom line will come as a relief to the country’s Managing Director, Mrs. Oyeyimika Adeboye who was appointed Managing Director, Executive Director of Cadbury Nigeria PLC as of April 1, 2019.

Since her appointment, she has implemented several strategies to revive the company’s bottom line, however consistency has been the challenge due to volatile operational costs. The latest results suggest they may have turned the corner.

Profit drivers

The company’s profits were boosted by a 30% increase in its topline revenues of N16.5 billion compared to N12.7 billion reported a year earlier. The revenues were boosted by a rise in sales from its refreshment beverages segments which includes the manufacturing and sale of Bournvita and 3-in-1 Hot Chocolate.

Revenues from the segment went from N9 billion to N11.6 billion as a combination of better distribution, price adjustments, and improved product positioning helped boost sales of Bournvita and its chocolate drinks.

Cadbury also reported improved sales from its confectionary division which includes manufacturing and sale of Tom Tom, Buttermint, Candy Caramel, Candy Coffee, and Clorets gum. The division saw revenues jump to N3.9 billion from N3.4 billion same period in 2022.

Cadbury has invested heavily in developing and introducing new products into the market as it continues to face stiff competition from its peers. It recently debuted the biscuit segment which includes a new Bournvita biscuit. Revenue from this new segment was N604 million helping boost the top line. The segment also contributed N179 million to group profits.

Despite the growth in revenues, the company faced a rise in operating expenses as rising inflation, exchange rate depreciation and the new naira note swap policy exacerbated costs. However, it was able to reduce the impact of rising costs on margins.

Cost of sales sliced 62% of revenues much improved from 74.8% same period in 2022. Operating expenses weighed on margins reducing gross margins by 27.5%. It was 40.6% the prior year. Cadbury thus earned a profit of about N20.6 for every N100 of revenue compared to just N11.8 a year earlier.

Significance of the results

Cadbury’s Q1 profits delivered earnings per share of N1.84 by far its best quarter since 2016 when Nairametrics started keeping records of its financials.

• Before now, the company has only been able to report profits above N1 billion twice in the last 28 quarters. In fact, the profit of N3.45 billion in Q1 best of the N946 million reported in the whole of 2022.
• Nairametrics research analysts how noted that Cadbury historically has cyclical quarters where cost pressures are difficult to absorb thus depressing margins. In some quarters it posts losses that can wipe out gains made from prior quarters.
• However, to sustain this performance all year round, Cadbury will need to keep profitability margins at 15-20% which will be challenging in a difficult environment. Before this quarter its best profit margin was in the first quarter of 2021 where it reported a profit margin of about 17.6%. Margins fell to negative 8.6% the next quarter.

Investors reward Cadbury will a share price bump as the stock gained 9.8% on Thursday to close at N12.3 per share. Its current price-to-earnings ratio is 7.3x. The share price has now gained 21% in two days.

Cadbury has a year-high share price of about N17 per share.

Cadbury is a dividend-paying Company and declared dividends of N0.40 per share for the 2022 financial year payable on June 27, 2023, for members on the register of Members as on June 4, 2023.