Wednesday, March 22, 2017 11.13AM / FBNQuest Research
Implications: Downward revision to consensus likely
Positives: Sales up 28.2% y/y and 16.8% q/q
Negatives: PBT down -81.8% y/y
Cadbury Nigeria reported Q4 2016 results this afternoon. Although the company grew sales by 28.2% y/y to N8.7bn, its PBT of N279m was -81.8% lower y/y. We believe the topline was boosted by prices increases as well as slower demand for imported competition.
However, the impact of the naira devaluation on Cadbury’s raw material costs for key inputs such as sugar and milk resulted in a gross margin contraction of -990bps y/y to 27.5%.
Operating expenses increased by 91.2% y/y following the company’s aggressive marketing initiatives. We also suspect that disruptions to gas pipelines in the Niger-Delta might have forced the company to switch to more expensive fuels such as diesel for power to run manufacturing plants.
Cadbury’s PAT of N822m grew by 11.0% y/y, and came in higher than its PBT due to a tax credit of N266m and other comprehensive income of N276m. The q/q results showed sales growth of N16.8% q/q. Gross margin expanded by 2,179bps y/y, largely due to base effects. The relative stability of the naira in Q4 compared with previous quarters probably helped also. PBT and PAT compare with losses of –N1.1bn and –N989m in Q3 2016.
The full year results showed that sales grew 7.7% y/y. However, a gross margin contraction of -921bps y/y to 22.9% more than offset a 188.3% rise in other operating income to lead to a pre-tax loss of –N563m (vs N1.6bn profit in FY 2015). The company had reported pretax losses of –N477m and –N1.1bn in Q2 & Q3 respectively, following the impact of the devaluation of the naira which fell to N280/US$ as of end-June from N199/US$ and around N305/US$ as of end-September, while other other macro headwinds persisted. The post-tax loss was reduced to –N20m by a tax credit and other comprehensive income of N543m combined.
Compared with our forecasts, Q4 sales beat by 39.7% while PBT missed by -73.5%. The FY sales beat by 9% while the FY pre-tax loss compares with a N214m profit we had forecasted. FY 2016 sales were in line with consensus estimate of N30.3bn but consensus expected N179m for PBT.
Cadbury shares have shed -28.0% ytd (vs -4.9% ytd for the ASI); we expect the market’s reaction to these results to be negative. We rate the stock Underperform.
Estimates are under review.
Cadbury Nigeria Q4 2016 results vs. FBNQuest Research estimates (N millions)