While early earnings releases by consumer goods firms have been disappointing so far, Cadbury Nigeria Plc has bucked the trend as it recorded strong earnings to end 2019 financial year.
The beverage producer attributed the growth at the top (revenue) and bottom-line (profit) to its cost-cutting measures, effective marketing strategy, and superlative performance of its various brands.
For the year ended December 2019, Cadbury revenue increased by 9.39 percent to N39.32 billion from N35.97 billion the previous year.
The revenue growth was largely driven by the contribution of diversified product portfolio, as the company mulls the launch of more market penetrating products.
Also, the Cadbury Hot Chocolate 3-in-1 brand, a treat portfolio, recorded substantial growth, driven by its unique offering, while its gum and candy brands also recorded success in their respective categories.
The beverage makers’ cost of sales were up 11.04 percent to N31.11 billion in the period under review from N28.01 billion the previous year; the expansion in cost of sales is lower than the 11.98 percent December inflation figure.
Gross profit rose by 3.62 percent to N8.21 billion in December 2019 as against N7.95 billion as at Dec ember 2018, which means the company is efficient in managing direct costs attribute to projects.
Administrative expenses were up 10.60 percent to N6.94 billion in the period under review as against N6.27 billion as at December 2018.
Cadbury’s net income surged by 53.59 percent to N1.26 billion in December 2019, the highest in five years.
The company recorded a loss of N296.12 million in 2016 financial year, a period when a severe dollar scarcity hindered consumer goods firms from importing raw materials and machinery.
Net profit margins increased to 3.22 percent in the period review from 2.28 percent the previous year; this means the beverage producer has translate top line impressive performance into bottom line growth.
The company is efficient in the use of shareholders machines and equipment to generate higher sales and profit as fixed asset turnover increased to 2.71 times in December 2019 from 2.60 times in December 2018.
The fixed asset turnover ratio is an efficiency ratio that measures a companies return on their investment in property, plant, and equipment by comparing net sales with fixed assets. In other words, it calculates how efficiently a company is a producing sales with its machines and equipment.
Cadbury and its peers operate in an environment beset by a weak consumer spending, poor job creation, border closure, and eroding impact of double digit inflation would hurt earnings.
The latest earnings releases by companies were unimpressive, but analysts had said that this quarter could be the worst in close to a decade.
Nascon Allied Industries Plc, saw a 56.75 percent drop in profit, the worst results in five years as revenue growth couldn’t cover or absorb spiralling cost of production.
The company wasn’t able to generate much net income from each naira of sales as profit margins fell to 7.01 percent in December 2019 from 17.15 percent the previous year.
Guniness Nigeria Plc’s net income dipped by 32.45 percent to N1.74 billion as at December 2019, while net margins dipped to 2.55 percent in December 2019 from 3.80 percent the previous year;however, an in increase price of key products could underpin future revenue as brewers in the country are the hardest hit from a harsh and unpredictable macroeconomic environment.
UACN Nigeria Plc’s recorded a loss of N9.23 billion in December 2019 from a profit of N9.58 billion it recorded the previous year.
Unilever Nigeria Plc posted a loss of N60.75 billion in December 2019, a disappointing result that cast a pall on future divided payment.
International Breweries Plc posted a loss of N9.138 billion as at December 2019, as the brewer continues to struggle with intense competition from producer of cheap brands, a weak sales volume, spiralling debt, and mounting cost of production.
Analysts at CSL Stock Brokers say FMCGs particularly businesses with product portfolio skewed towards personal care will continue to struggle with volume growth in 2020 as familiar challenges continue to bite.
The research house added that beverage producers-particularly cocoa related)- would witness significant pressure on margins in 2020 as the cartel formed between Ghana and Ivory Coast (both of whom control 60 percent of world cocoa output) would keep cocoa prices high, hence significantly impacting material costs.
Nigerians are getting poorer as over 50 percent of a population of 200 million live on less than $1.98 dollars a day, which means they have little in their pockets to go shopping.
According to data from Fitch solutions, household income is estimated to have grown by 8.8 percent year on year to $4,252 in 2019 from $3,908 2018. 2019’s 8.8 percent years on year growth comes comes in lower than the 10 .7 percent years on year (y/y) growth in 2018.
Inflationary pressures and the hike in fuel price continue to hurt consumers’ ability to increase expenditure which in turn continues to pressure consumer companies’ revenue.
Inflation for the month of December accelerated to 11.98 percent, the highest in 7 months as price of basic food stuffs skyrocketed on the back of border closure.
High levelof unemployment at 23 .1 percent as at Sept 2018 and poor job creation continues to pressure expenditure levels.
“They have lost considerable amount of value in the last two years. Their earnings have been reducing but share price has been reducing faster,” said Wale Olusi head of research at United Capital Research Limited.
“Investment sentiment for them is poor and will remain so because competition from cheaper brand. Consumer wallets will remain squeezed on the back of hike in VAT,” said Olusi
Abiola Gbemisola, consumer goods analysts at Chapel Hill Denham Limited said that the new minimum wage, it spread across the country, would invigorate consumer wallets as they would have more money in their pockets.
He added that the New Loans to Deposit (LDR) would make it easy for consumers to access loans, hence paving the way for them to open their purse string in the short term.
“We see continued deterioration in margins but a price increases in price of key product could underpin bottom line,” said Gbemisola.
Analysts at United Capital Limited said the possible gains from the full implementation of the new minimum wage are likely to be erased by upward tax reviews and sticky-upward product prices.
“Amid all the above-highlighted downside risk, we believe much of the growth we are likely to see in 2020 will be driven by higher prices (inflationary), rather than higher consumer demand,” said Analysts at United Capital Limited.