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Published On: Mon, Aug 7th, 2017

CADBURY: Poor results spook investors

OKEY ONYENWEAKU|

As one time blue chip confectionary giant Cadbury Plc posts another half year loss, shareholders of the company are dumping the stock in droves. The company posted a half year (H1) loss before tax of a staggering N766.3 million or slightly under eight tenth of a billion naira. This contrasts sharply with the N216.3 million recorded in the contemporary period of 2016. This has had adverse effect on the fortunes of the company which has lost 9.6 per cent of its market value on the last working day of July 2017.
With the company’s earnings for the year looking bleak shareholders are elbowing themselves out of the door as analysts see the stock’s price tumbling a few more notches over the last half of the year.
The sweet manufacturer saw its H1 2017 cost of sales rise by a disturbing 43 per cent from N5.020billion in 2016 to N7.227billion in the corresponding period of 2017. Suggesting that the slide in the foreign exchange value of the naira in the course of the first two quarters of the year, especially the first quarter, had devastating effect on the company’s cost of raw materials.
While the company’s administrative cost dropped marginally by 0.3 per cent from N1.056billion to N1052billion, as management struggled to put a lid on expenses. But number crunchers note that the tiger in the room is not company’s sales and general administrative costs but the company’s huge dependence on foreign inputs and the payout on royalties which was smothering the businesses gross earnings. A company source that did not want to be mentioned in print as he did not have official permission to do so, noted that the maker of iconic food drink, Bournvita, had to pay out a hefty N700million in royalties in the course of the year. This was almost exactly equal to the loss the company made in the half year.
Hope of a near term revival of the food and beverages company appear slim after a promising N92.95million profit recorded in the first quarter of the year slipped and disappeared by the second quarters.
Even more striking is that the beverage producer posted a loss before tax of N563 million in the year ended December 31, 2016 compared to a pre-tax profit of N1.58 billion recorded in 2015. The company’s reoccurring dive into a pool of red ink has spooked many shareholders into bailing out on the company as they head for the door, one shareholder who spoke with Business Hallmark under conditions of anonymity said, ‘a local adage goes that only a fool waits for a long stick to poke him in the eye a wise man looks at it from afar. So getting out of Cadbury now seems the only sensible thing to do’.
The company declared a loss after tax of N296 million in 2016 which was a far cry from the N1.153 billion profit after tax it posted in the corresponding period of 2015.
Revenue of Cadbury Nigeria leaped by 7.41 percent to N29.79 billion in 2016 year end from N27.82 billion posted a year earlier.
The company did not pay dividend to investors of the company for the period ended December 31, 2016 after paying its shareholders a dividend of 65 kobo per share which amounted to N1.22 billion in 2015.
The biggest worry for its investors is that the company which has struggled over the last 10 years may continue to have a bleak outlook given its continued lack of response to a rapidly changing market and an economy still groining from a deep recession, the first it has experienced in twenty five years.
Cadbury has suffered huge operating setbacks as a result of local currency devaluation (a semi- float of the naira by the CBN) that has made borrowing costs high and bumped up the wholesale and retail prices of goods sold by the firm. This was before the new window, ‘The Nigerian Autonomous Foreign Exchange Rate Fixing NAFEX’, which has somewhat improved access to forex which was another niggling problem. ”Continued difficulties with obtaining foreign exchange to buy needed raw materials, a weakened consumer purchasing power, and competition from rivals in the market have also affected the company badly”, says Olusegun Atere, Head of Portfolio management, Imperial Finance and Trust, a local stock broking company.
Although the company was once seen adhering to the highest standards of corporate governance a number of missteps made 10 years ago appear to still haunt it to this very day.
Analysts have not stopped blaming the incident of 2005/2006 when the management of company under the leadership of Bunmi Oni mis-stated its accounts in a brazen and questionable application of what has later become known as ‘creative accounting’ to sweeten the company’s books. Cadbury Nigeria Plc, manipulated and overstated its financial statement to boost its corporate image and push up its stock price. As a result, the company inflated its Turnover, Profit and other performance indices, the manipulation, which was discovered in 2006 started in 2002. The major culprits were the former Managing Director, Mr Bunmi Oni and former Finance Director of the company, Mr Ayo Kadiri.
The deception which took place between 2002 and 2005 propelled investors to bet on the company’s stock believing that it had good financial fundamentals. As a result, the Securities and Exchange Commission (SEC) waded into the matter and banned Mr. Bunmi Oni and Mr. Ayo Akadiri, from operating in the nation’s capital market or holding directorship of any quoted company in Nigeria.
SEC also fined Cadbury for filing financial statements that contained untrue/ misleading statements; and trading on its shares was suspended for about three months while it was being investigated. Some other directors of the Company and senior management staff were sacked.
Its External Auditor, Akintola Williams Delloite and Registrar, Union Registrar Limited were also sanctioned.
Apart from Oni and Akadiri’s ban, others recommended for investigation and prosecution include Dr. UduimoItsueli, Chairman of the company, Mr. J. S. Bogunjoko, Mr. Abiodun Jaji, Mr. Andrew Baker, Mr. Christopher Okeke, Mr. Olatunde Falase, Chief Raymond Ihyembe, Mr. Gabriel Onabote, Mr. Olusegun Oyewole, Mr. Matthew Shattock, Mr. Olusegun Aina, Mr. Akinbode Gbolahan and Mr. Tunde Egbeyemi.
Despite the seeming resolution of its crisis, keen observers still suspect that Cadbury may have falsified its account to cover up a more grievous issue that the public does not know about yet. This problem might have started after Mr Bunmi Oni, took over from Mr Christopher Kolade. Business Hallmark’s investigations reveal that there was a deep Boardroom squabble after Oni took over management of the company.
Inside sources confided to us that the crisis in the company was much more than the eye could see. “There were doubts that Palmer could tackle the challenges in the company except he uprooted the management stem totally as the rot dated back to Oni,” a former staff said.
He explained that the company’s history of losses may have started earlier than people thought. This however supports the fear of many, that the company may have illegitimately paid dividend from 2001 to 2005 even when the accounts were drowning in red to cover up some dodgy accounting.
Those who subsequently took position in the company’s equity were confused by their misfortune since the announcement of losses.
Nevertheless, Cadbury had consistently paid dividend to shareholders between 1977 and 2006 while bonuses came occasionally (13 times).
Cadbury has since been seen as a blue-chip company by virtue of its performance in the stock market over the years. Its 2004 and 2005, performance indicators gave credence to this. For instance, it recorded N2.8billion profit after tax in 2004 and N2.7 billion in 2005.
This was also when its mouth-watering dividend stood at N1.60 and N1.30 per share. Its investors smiled to the bank as it paid a cushy dividend of N1.6billion in 2004 and N1.3 billion in 2005. The party ended in 2006, 2007 and 2008. The company only resumed dividend payment again in 2015.
But the company appears to have lost its blue-chip status. First, Cadbury has only paid dividend once, since 2015 (after its payment in 2006). Second, its performance has also been very weak. Third, compared to Nestle Nigeria, Cadbury’s performance pales sharply.
The company’s products were highly competitive and showed strong market leadership until the last decade. Observers believe that one of its flagship products ‘Tom Tom’ had achieved deep penetration in every nook and corner of West Africa. While Bournvita its food drink was a staple for many. It sweet products, Buttermint, Eclairs, Bubba, Trebor among others, were very strong brands but all that has disappeared.
That is more so now as several competitors have muscled into the confectionary business and gradually taken huge bites out of its previous market dominance. While shareholders had thought that the company had left the worse behind, its management still does not appear to have sufficient appreciation of the onslaught on its market share in different product segments.
Cadbury, a dodgy investment option
To invest in Cadbury now is difficult proposition say local stockebrokers. The company has only made profit in 2015 since 2006. Investors were only paid 65 kobo per share as dividend in 2015. Indeed investors have lost huge sums by the company both for lack of dividend payouts and negative capital appreciation. Sentiments were further soured when the company did not pay dividends in 2016.
Nevertheless, a few contrarian investors are hoping to see better days after its rights Issue. Broad street observers have observed that the company’s stock is not slipping in value because of its predicament but its current operating difficulties took a toll on its market valuation. However, while its stock has gained 17 per cent year to Date, it is nowhere near the 36 per cent gain of the All Shares Index (ASI).
The company’s management recently assured shareholders that the company would focus on four key strategic initiatives to realize its growth ambitions this year, after taking major hits in sales and profit in the previous year.
Its management had told investors that the company would concentrate efforts at increasing its market share in the powdered-drink and candy categories while investing in innovation and the enhancement of its product portfolio.
“One of the major strengths of our company has been operational efficiency, as aligned with global best practices.
Constant improvements in operational efficiency helped us to offset difficulties in the operating environment,” the management had said. But market observers are worried that the company has found it difficult to re-invent itself. And they have queried how a company that wants to remain competitive depend on very slim product lines.
Managing Director, Crane Securities limited, Mr. Mike Ezeh told Business Hallmark that the incident of financial mis-statement of 2005/2006 is still haunting the company, in addition to its conservatism.
President Progressive shareholders’ Association of Nigeria, Mr. Boniface Okezie believes that Cadbury still has potential to turn its fortunes around but he criticised its high turnover of helmsmen who do not seem to stay long enough on the top seat to be able to realise their vision before they are replaced.
Okezie advised the board of Cadbury to recruit somebody from the local market who understands to terrain adding that the management should diversify as well as expand its product lines like Nestle among others.
On February 1, 2017 Mr. Muhammad Amir Shamsi assumed office as Managing Director after taking over from Mr. Roy Naaman.
Mr. Shamsi joined Mondelez International, the parent company of Cadbury Nigeria Plc, as a Marketing Director of its biscuit business in Pakistan in June 2009. From there, he moved up the ranks to become Head of New Categories, Gum & Candy at Kraft Foods, a Mondelez business in West Africa from 2012 to 2013.
A few market analysts still believe that Cadbury may yet fend off its challenges and return to stable profitability soon.

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