The dip in the economy is taking a toll as manufacturing giant Cadbury succumbed to falling sales even if it was able to turn a profit.
Cadbury sold N25.8 billion of its products but it was 10.8 percent short of the N28.9 achieved in the equivalent quarter in 2019. But management effectively tamed cost , leading first to better operating results and then improved bottom line. Operating profit crossed the billion mark to N1.13 billion from N811.9 million. A direct result is improvement pretax profit to 1.22 billion from N925.8 million. The company’s bottom line also jumped by 3.8 percent to N854.5 million from N648 million.
Despite the deft management by Cadbury, it’s stock price has been on the losers side, dropping to N.25 from N9.6.
Cadbury has a history of performing against the tide, at least in this financial year.
Although in the first quarter of the new financial year, the company failed to impress in terms of volume, it made up by running a very efficient manufacturing company.
We had observed earlier when first quarter results came in that it’s volumes did not quite add but it’s margins were enough to keep it in reckoning. It may be the company’s strategy going forward as the economy looks to dip in the new quarter.
At the end of business in the first quarter ending March 31, Cadbury garnered Total Revenue of N8.56 billion but it was 7.86 percent short of the N9.3 billion stashed in the equivalent period in 2019. But the economy grew 2.55 percent in the period indicating a better economic state than before and the company should have had a rub on effect on sales. This didn’t happen, possibly because inflation was as also on the rise, spiking to 12.26 percent and restricting purchasing power.
The company spent less to market its products in the period as Cost of Sales dropped 9.32 percent to N6.3 billion from N6.9 billion. The result was a 3.6 percent slide in gross profit to N2.29 billion. Despite the downward movement of top line profit, the company’s gross profit margin inched upwards to 26.7 percent from 25.6 percent.
Seeing that top line profit is on a shaky footing, it was crucial to keep operating costs down. That’s exactly what the company did by pushing down selling, distribution and administrative costs or it’s variable cost. The effect was an instant jump in operating results, as operating profit leapt 23.6 percent to N882.5 million from N713.65 million. The move ensured operating margin improved to 10.3 percent from 7.7 percent indicating that the operational efficiency of the makers of Bournvita improved in the period.
The company’s operational efficiency also paid off with regards to pretax profit, which climbed up by a quarter to N912.8 million from N723.9 million. Pretax profit margin responded with a rise to 10.8 percent from 7.8 percent.
With operating profit and pretax profits on a positive trajectory, the company’s bottom line reacted with a rise of 26.1 percent to N638.94 million from N506.75 million and a better net profit margin of 7.5 percent from 5.4 percent.
The spruced up margins achieved by the company were also seen in improved Return on Assets ( ROA) and Return On Equity (ROE). The ability of company assets to deliver profits improved to 2 percent from 1.27 percent while Equity contributed 4.5 percent to profits compared to 3.7 percent achieved in the equivalent quarter in 2019.
The company’s ability to improve profits in the face of dwindling sales in an inflationary environment may have caught the fancy of investors whose activities left Cadbury on the gainers table last Friday when the company stock sold for N8.65 after gaining N0.65, an upward trend noticed since May 28 after a dip on the 27th.
It is hoped that the company can continue to apply its efficiency measures going forward as the outlook for the economy is one that is to slow considerably in the coming months, likely entering a recession. While an economy-wide slowdown is most certainly going to gnaw at sales and bottom line, a resort to maintaining or growing margins will help the company stock remain attractive.