By Folakemi Emem-Akpan
Ask any Nigerian to mention two well-known conglomerates in Nigeria that produce fast moving consumer goods, and you can be sure they will make mention of Cadbury and Nestle, respective manufacturers of Bournvita and Milo. Of the two, Nestle is clearly the bigger one, and has a balance sheet more than thrice the size of Cadbury’s. It also grosses more annually.
It is however important to note that size does not necessarily translate to better profitability. In terms of profitability ratios, Nestle was the hands down winner for the 2016 comparison analysis. We examined six profitability ratios and Nestle took the top spot in all six, and Cadbury did not come out tops in any.
Turnover growth rate
This was the first ratio in which Nestle was the winner of the two for the 2016 financial year. The company was able to grow the level of its gross earnings from N151 billion in 2015 to N182 billion in 2016, and translating to a 19.8 per cent growth rate. Meanwhile, Cadbury was able to advance its gross earnings much more slowly, such gross earnings rising to N29.9 billion from N27.8 billion in the preceding year. Analysis shows that this translates to a growth rate of 7.6 per cent. While this was okay in its own right, it wasn’t as high as that of Nestle, making Nestle the clear winner.
Pre-tax profit growth rate
This was also another of the ratios that Nestle came out tops. Pretax profit for Nestle was N21.5 billion, 27.6 per cent less than the N29.3 billion in the preceding year. While the company had a lower profit, its situation was nowhere as bad as that of Cadbury’s.
On the other hand, Cadbury had a pretax loss, rather than a pre tax profit. Its loss before profit stood at N562 million, 135.6 per cent lower than the profit of N1.58 billion recorded in the prior year.
Nestle was also better able to translate its turnover to profit than Cadbury was. For the 2016 financial year, pre-tax profit margin (which measures a company’s ability to squeeze as much profit as possible from turnover) for Nestle was 11.9 per cent, higher and better than Cadbury’s result. Cadbury had a loss margin of 1.9 per cent, meaning that it lost N1.90 on every N100 income earned. This is as compared to the profit of N11.90 that Nestle made on every N100 income earned.
Nestle was easily the winner in terms of return on equity for the 2016 financial year. Working with shareholders’ funds valued at N30.9 billion, Nestle was able to record a return on equity of 25.5 per cent. This 25.5 per cent return on equity is as compared to and better than Cadbury’s loss on equity of 2.6 for 2016 which is in turn as compared to Cadbury’s return on equity of 9.3 per cent for 2015.
Analysis shows that while every N100 worth of equity deployed by Nestle earned it N25.50 in after-tax profit, such N100 equity deployed earned Cadbury a loss of N2.60.
Return on assets followed the same different pattern as ROE did, with Nestle recording a return and Cadbury recording a loss. Nestle had a return on equity of 12.7 per cent while Cadbury had a loss on assets of 1.9 per cent. This means that Nestle has a profit of N12.70 on every N100 worth of assets deployed while Cadbury recorded a loss of N1.90 on the same N100 worth of assets.
This was another ratio in which Nestle came out tops. As a ratio, this should be kept as low as possible without compromising quality. Nestle had a ratio of 20.4 per cent, even lower and thus better than the 21.9 per cent result recorded in 2015. This result was also better than Cadbury’s 26.8 per cent result.
A point to consider
It is important to note that the 2016 financial year was not a good one for Cadbury Plc at many levels, and it seemed to be one of the companies hardest hit by Nigeria’s economic recession. Nestle also did not do generally as well in 2016 as it did in 2015, but it did enough to still remain very profitable.