—–3Q22 Bottomline Impacted by Rising Costs

FSDH Initial Reaction: Cadbury Nigeria 3Q22 results 
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October 31, 2022/FSDH Research

Key Performance Highlights:

• Cadbury Nigeria reported a strong 27.2% YoY revenue growth in 3Q22 to N14.7 billion, while the net profit plummeted 76.6% to N475 million in 3Q22. However, Cadbury’s revenue growth continued to beat Unilever’s 21.5% YoY revenue growth this quarter. The company’s revenue growth was driven by Refreshment Beverages (+32.4% YoY) and Confectionary (+23.8% YoY), partially offset by Intermediate Cocoa products (-26.4% YoY). However, the company’s operations were affected by rising costs, with the cost of sales rising 50.3% YoY, thereby contracting gross margins by a massive 1271 bps YoY to 17.2% in 3Q22.
   
• The selling & distribution expenses ballooned 44.6% YoY to N1.6 billion, and the administrative expenses witnessed a massive increase to N504 million in 3Q22. The company recorded other income of N54 million in 3Q22, compared to N9 million in the prior-year quarter, primarily due to gain on disposal of assets and higher insurance claims received. The company’s net finance income declined 10.2% YoY to N215 million (3Q21: N239 million), primarily due to a 47.5% YoY jump in interest expense on borrowings to N137 million in 3Q22 (3Q21:N93 million), partially offset by a 6.0% YoY spurt in the interest income from bank deposits to N353 million in 3Q22 from N333 million in 3Q21. The company reported a 74.7% YoY fall in the profit before income tax, further worsened by a higher effective tax rate of 30.0% in 3Q22, up from 24.2% in 3Q21. Consequently, Cadbury reported a 76.6% YoY drop in net profit of N475 million in 3Q22 compared to a net profit of N2.0 billion in 3Q21. Cadbury Nigeria’s earnings per share declined to N0.25 in 3Q22 compared to N1.08 in the prior period.
   
• Looking at the margins and operating performance, the company’s margins contracted substantially in 3Q22. The company reported depreciation and amortisation of N372 million in 3Q22 resulting in an EBITDA of N836 million in 3Q22, compared to an EBITDA of N2.8 billion in 3Q21. Moreover, the company witnessed a significant decline in the profit before tax in all three segments, led by Refreshment Beverages (N451 million), followed by Confectionary (N207 million), and Intermediate Cocoa products (N21 million) in 3Q22. Geography-wise, domestic revenues maintained the upward trend with a 29.0% YoY revenue growth to N14.1 billion, while exports declined 4.1% YoY to N587 million in 3Q22.
   
• Looking at the sequential performance, Cadbury Nigeria reported a marginal 2.8% QoQ revenue decline in 3Q22. In comparison, the cost of sales decreased 2.6% QoQ. Hence, the gross profit was reduced by 3.8% QoQ to N2.5 billion in 3Q22 versus N2.6 billion in 2Q22. Cadbury recorded a massive 81.9% QoQ rise in administrative expenses to N504 million and a 12.7% QoQ rise in selling and distribution expenses to N1.6 billion, with the net finance income decreasing a marginal 1.4% QoQ. As a result, the company recorded a 40.7% QoQ drop in profit after tax to N475 million in 3Q22, compared to N800 million in 2Q22.

Market Reaction: Investor reaction to the 3Q22 results was subdued as the stock closed 0.43% lower at N11.60 (26/10) versus a 0.16% gain for the All-Share Index (26/10).

Cadbury Nigeria Earnings Highlights 3Q22

Source: Company Financials, FSDH