Although the manufacturing sector of the Nigerian economy appears to be gradually bouncing back to reckoning based on some initiatives made by authorities to reposition the segment, it is still impeded by some challenges. This is because the economy generally has continued to face some enormous socio-economic challenges such as the security trials in Northern part of the country with the attendance consequences of loss of lives and properties.
Others are domestic constraints such as depletion of fiscal buffers, dwindling foreign reserves, erratic supply of public electricity and poor infrastructures. While some companies were able to successfully weather the storm, others, including Cadbury Nigeria Plc, could not. The firm remains susceptible to the challenges facing the manufacturing businesses in Nigeria.
The company’s bottom-line, which had soared during the financial year ended 2013, dwindled during the 2014 financial year. However, contrary to expectations that the company may come out of the woods in 2015, it began the year in an unimpressive note, as the situation degenerated from drop in profit margin into a loss position.
Market analysts majorly attributed the company’s dismal performance to weak consumer demands, stiffer competition and lack of accessibility to key markets in the Northern part of the country, coupled with increased financing costs, which have resulted in slow growth of many Fast Moving Consumer Goods Companies (FMCGC). Market sentiment for the shares of the company has also titled downwards in response to general share depletion being witnessed in the local bourse despite improved product rebranding and increased market penetration. The company’s share price, which closed at N59.85 per share on August 30, 2014, has recorded a decline in growth. At the close of business last Thursday, the company’s share price stood at N35.05, a decrease of N24.8 or 41.4 per cent year-to-date.
Financials
Cadbury Nigeria Plc had posted an impressive financial performance as shown in its audited financial statement for the year ended December 31, 2013. The company grew gross revenue by seven per cent year-on-year (y/y) to N35.76 billion from N33.55 billion recorded in the corresponding period of 2012. Similarly, gross profits were up 32.5 per cent y/y to N13.10 billion in FY13 compared to N11 billion as at FY12.
Hence, gross profit margin rose to 36.6 per cent as against 32.78 per cent in 2012. The above performance was as a result of reduction in inputs cost as cost of sales in the review period declined to 63.36 per cent in FY13 from 67.21 per cent FY12, which explains why cost of sales remained flat at 0 per cent to N22.66 billion (current period). Cadbury reported profit before tax (PBT) of N7.42 billion for the 12-month period to December 2013, an increase of 38 per cent year-on-year (YoY), from N5.36 billion as at year end (FY) 2012. Overall efficiency had improved as net profit margin in the review period increased to 20.94 per cent from 16.40 per cent in FY12.
It means that the company had been able to achieve satisfactory returns on shareholders fund. The stellar good performance of Cadbury then, stemmed from its ability to minimise cost as operating expenses increased slightly by three per cent to N7.43 billion from N7.25 billion FY12, while finance charges were down by 52 per cent y/y to N1.77 billion in the current period of Q4’13.Profit after tax (PAT) in the year ended December 31, 2013, soared by 80 per cent to N6.0 billion from N3.35 billion in the erstwhile period (FY) 2012.
Return on equity (ROE) climbed to 43.17 per cent in FY13 as against 40.16 perc ent as at FY12, while return on assets (ROA) rose to 25 per cent from 16.75 per cent in FY12. However, the company’s dwindling fortune began in the first quarter of 2014, as earnings were compressed by weak sales, leading to a dip in pre-tax profit by 31.31 per cent relative to the reduction in gross profit to N1.15 billion in March 2014 from N1.68 billion in March 2013.
This was principally due to the decline of 43.64 per cent in net fi-nance income to N274.59 milion in March 2014 from N487.23 million in March 2013, according to market watchers. The decline in the first quarter, which signaled signs of worry to investors, were sustained during the second quarter, as the company posted a 50 per cent decline in post-tax profits in the half year ended June 30, 2014.
The company, in a filing with the Nigerian Stock Exchange (NSE), said, its half-year net earnings decreased from N2.51 billion in 2013 to N1.26 billion, accounting for a drop of 50 per cent. Its pre-tax profit equally fell to N1.79 billion, down 50 per cent from N3.58 billion in the same period last year. Similarly, turnover decreased by 12.1 per cent to N15.32 billion in the six months to June 30 from N17.46 billion recorded during the comparable period of 2013. Consequently, Cadbury ended the financial year 2014 with 80 per cent drop in pre-tax profit, as top-line and bottom-line earnings showed considerable decline with gross earnings equally down by 15 per cent.
Key extracts of the audited report and accounts of the company for the year ended December 31, 2014, showed drop in growths in all key performance indices, damping strong performance outlook of one of the leading consumer goods companies in the country. Accordingly, profit before tax dropped by 80 per cent to N1.467 billion from N7.421 billion recorded in 2013, while profit after tax also decreased by 75 per cent to N1.512 billion during the period under review as against N6.023 billion recorded in 2013. Revenue was also down by 15 per cent during the year end from N35.760 billion in 2013 to N30.518 billion in 2014.
Cadbury had began the 2015 with poor performance, as the harsh operating environment increased its market woes. It posted a first-quarter loss of N303 million for the first quarter ended March 31, 2015, compared with N1.15 billion profit, year ago. Revenue at the food and confectionery maker declined three per cent during the period to N6.73 billion.
The company also swung to loss position with a loss after tax of N250.716 million for the half year ended June 30, 2015. The food and confectionery maker recorded a loss after tax of tax of N250.716 million at the first half of the year from a profit position of N1.263 billion in 2014, accounting for a percentage change of 120 per cent. Likewise, the company also posted a loss before tax of N250.716 million during the period under review from a profit position of N1.792 billion reported in the same period of 2014. This represented 114 percentage change. Gross earnings also fell to N14.137 billion during the second quarter of the year, as against N15.321 billion a year ago, accounting for a decrease of eight per cent.
Looking ahead
Managing Director, Cadbury Nigeria Plc, Mr. Emil Moskofian, while addressing the stock market community at the company’s facts behind the capital reduction, said that the company’s projections indicated that it would generate sufficient capital to meet its expansionary and operational requirements.
He noted that rather than invest the excess capital on behalf of shareholders at what might be sub-optimal returns, the board of directors decided to recommend the return of excess capital to shareholders who are best placed to take their own investment decisions. “Whilst the company’s board and management do not currently foresee any future capital requirements that will not be met from the internally generated resources, to the extent that the company is faced with an opportunity requiring significant capital, the board is confident that shareholders will continue in their steadfast support and participate in any capital raising requirement. The company also has excellent relationship with banks and other financial institutions that can be relied on to meet capital requirements as they arise,” he said.
Conclusion
The business climate for Cadbury, like any other manufacturing company, has been typically characterised by upsides and downsides, but the latter seemed to outweigh the former due to the challenges arising from unfriendly operating environment.
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